CPT Trading Platforms & Regulatory Compliance 3

Question 1

What does the term 'latency arbitrage' describe in electronic trading?

Accepted Answer

Exploiting small price differences due to speed advantages over other market participants

Answer

Latency arbitrage involves using faster technology to exploit tiny price discrepancies before slower participants can react.

Question 2

Under the Pattern Day Trader (PDT) rule, a trader in a margin account must maintain a minimum equity of:

Accepted Answer

$25,000

Answer

FINRA's PDT rule requires traders who execute four or more day trades in five business days in a margin account to maintain at least $25,000 in account equity.

Question 3

Which platform feature allows a trader to automatically close a position at a predefined profit target?

Accepted Answer

Take-profit (limit) order

Answer

A take-profit order, which is a limit order placed above the current price for a long position, automatically closes a trade when the target profit level is reached.

Question 4

SEC Rule 15c3-5, known as the 'Market Access Rule,' primarily requires broker-dealers to:

Accepted Answer

Implement risk controls before providing clients direct market access

Answer

The Market Access Rule requires broker-dealers to have pre-trade risk controls and supervisory procedures in place before providing market access to clients.

Question 5

What is 'slippage' in the context of trade execution on a trading platform?

Accepted Answer

The difference between the expected execution price and the actual fill price

Answer

Slippage is the difference between the price at which a trader expects to execute and the actual price received, often occurring in fast-moving or illiquid markets.

(CPT) Certified Pro Trader Practice Test

(CPT) Certified Pro Trader Practice Test

CPT Trading Platforms & Regulatory Compliance 3