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 occurs when orders fill at worse-than-expected prices, causing actual losses to exceed the planned risk amount.

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

A trading journal records trade details and emotions, enabling traders to spot recurring mistakes and refine their risk approach.

Question 3

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

Accepted Answer

$25,000

Answer

FINRA Rule 4210 requires pattern day traders to maintain at least $25,000 in their margin accounts.

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

Risk of ruin is the statistical probability that a trader will lose all capital given their win rate, risk per trade, and edge.

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

Scaling out secures profits on part of the position while keeping exposure for additional gains if the trend continues.

Day Trading Practice Test