Day Trading Trading Basics

Question 1

What defines day trading?

Accepted Answer

Buying and selling financial instruments within the same trading day, closing all positions before market close

Answer

Day traders open and close positions within the same trading session, avoiding overnight risk and seeking to profit from intraday price movements.

Question 2

What is the Pattern Day Trader (PDT) rule in the US?

Accepted Answer

A FINRA rule requiring $25,000 minimum equity for accounts making 4+ day trades in 5 business days

Answer

FINRA's PDT rule classifies traders who execute 4 or more day trades within 5 business days as pattern day traders, requiring a $25,000 minimum account balance.

Question 3

What is a market order?

Accepted Answer

An order to buy or sell immediately at the best available current price

Answer

Market orders execute immediately at the current best available price. They guarantee execution but not the exact price, which can vary in fast-moving markets.

Question 4

What is slippage in day trading?

Accepted Answer

The difference between the expected price of a trade and the actual price at which it executes

Answer

Slippage occurs in fast-moving markets when orders are filled at a different price than expected, which can be positive or negative.

Question 5

What is volume in day trading?

Accepted Answer

The number of shares or contracts traded in a given time period, indicating market activity and liquidity

Answer

Volume measures trading activity. High volume indicates strong interest and liquidity, making it easier to enter and exit positions at desired prices.

Day Trading Practice Test

Day Trading Practice Test

Day Trading Trading Basics