Risk Management Flashcards
6 cards from real Day Trading practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Risk Management flashcards as text
What is 'slippage' and how does it affect risk management calculations?
Answer: Slippage is the difference between expected and actual fill price, increasing real losses beyond planned risk
Slippage occurs when orders fill at worse-than-expected prices, causing actual losses to exceed the planned risk amount.
Which of the following is a key benefit of keeping a trading journal?
Answer: It allows review of past trades to identify risk patterns and improve discipline
A trading journal records trade details and emotions, enabling traders to spot recurring mistakes and refine their risk approach.
A pattern day trader (PDT) in the US must maintain a minimum account equity of:
Answer: $25,000
FINRA Rule 4210 requires pattern day traders to maintain at least $25,000 in their margin accounts.
What is 'risk of ruin' in day trading?
Answer: The probability that a trader's account will be depleted to zero
Risk of ruin is the statistical probability that a trader will lose all capital given their win rate, risk per trade, and edge.
When scaling out of a winning position, a trader sells partial shares at multiple price levels. This technique primarily helps to:
Answer: Lock in partial profits while allowing remaining shares to capture further upside
Scaling out secures profits on part of the position while keeping exposure for additional gains if the trend continues.
Why should day traders avoid 'averaging down' into a losing position?
Answer: It increases total risk exposure as the position size grows while price moves against you
Averaging down adds capital to a losing trade, compounding losses if the price continues to fall, violating sound risk management.