Day Trading Risk Management 3

Question 1

What is 'slippage' and how does it affect risk management calculations?

Accepted Answer

Slippage is the difference between expected and actual fill price, increasing real losses beyond planned risk

Answer

Slippage is a broker fee added to each trade

Answer

Slippage refers to a missed trade signal

Answer

Slippage is the gap between bid and ask prices only

Question 2

Which of the following is a key benefit of keeping a trading journal?

Accepted Answer

It allows review of past trades to identify risk patterns and improve discipline

Answer

It automatically executes stop-loss orders

Answer

It reduces brokerage commissions

Answer

It qualifies the trader for pattern day trader status

Question 3

A pattern day trader (PDT) in the US must maintain a minimum account equity of:

Accepted Answer

$25,000

Answer

$5,000

Answer

$10,000

Answer

$50,000

Question 4

What is 'risk of ruin' in day trading?

Accepted Answer

The probability that a trader's account will be depleted to zero

Answer

The probability of losing a single large trade

Answer

The risk of a broker going bankrupt

Answer

The chance of a stock being delisted

Question 5

When scaling out of a winning position, a trader sells partial shares at multiple price levels. This technique primarily helps to:

Accepted Answer

Lock in partial profits while allowing remaining shares to capture further upside

Answer

Increase the average cost basis

Answer

Avoid pattern day trader restrictions

Answer

Reduce the bid-ask spread paid

Question 6

Why should day traders avoid 'averaging down' into a losing position?

Accepted Answer

It increases total risk exposure as the position size grows while price moves against you

Answer

It is prohibited by SEC regulations

Answer

It reduces the number of available trades for the day

Answer

It triggers the wash-sale rule