CPT CPT Market Structure & Order Flow

Question 1

What does 'market microstructure' primarily study in the context of professional trading?

Accepted Answer

The mechanics of how trades are executed, priced, and settled

Answer

Market microstructure focuses on the mechanisms and rules governing how buy and sell orders are translated into actual trades and prices.

Question 2

In order flow analysis, what does a 'delta' reading on a footprint chart represent?

Accepted Answer

The net difference between aggressive buying volume and aggressive selling volume

Answer

Delta on a footprint chart shows the net buy volume minus net sell volume, indicating whether buyers or sellers were more aggressive.

Question 3

What is a 'market maker' primarily responsible for in equity and futures markets?

Accepted Answer

Providing continuous bid and ask quotes to ensure market liquidity

Answer

Market makers post continuous two-sided quotes (bid and ask), earning the spread while ensuring traders can buy or sell at any time.

Question 4

Which order type guarantees execution but does NOT guarantee a specific price?

Accepted Answer

Market order

Answer

A market order executes immediately at the best available price, guaranteeing fill but not the exact execution price.

Question 5

What does 'price discovery' mean in financial markets?

Accepted Answer

The process of identifying the fair value of an asset through supply and demand interactions

Answer

Price discovery is the continuous process by which buyer and seller interactions in a market determine the current fair value of an asset.

(CPT) Certified Pro Trader Practice Test