Trading Basics Flashcards

What does the bid-ask spread represent in day trading?

Answer: The difference between the highest buy price and lowest sell price

The bid-ask spread is the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask).

Which order type guarantees execution but NOT a specific price?

Answer: Market order

A market order executes immediately at the best available price but does not guarantee the exact price you receive.

What is 'slippage' in the context of day trading?

Answer: The difference between expected and actual execution price

Slippage occurs when a trade executes at a different price than expected, often due to fast-moving markets or low liquidity.

What does 'going long' mean in day trading?

Answer: Buying a security expecting its price to rise

Going long means purchasing a security with the expectation that its price will increase, allowing you to sell at a profit.

Which of the following best describes 'liquidity' in a stock?

Answer: The ease with which a stock can be bought or sold without affecting its price

Liquidity refers to how easily a security can be traded without causing significant price movement, typically measured by volume and bid-ask spread.

A day trader buys 500 shares at $20 and sells them at $20.40. What is the gross profit before commissions?

Answer: $200

Gross profit = 500 shares × $0.40 per share = $200.

What is the primary purpose of pre-market trading hours?

Answer: To react to overnight news and earnings before the regular session opens

Pre-market trading (4:00–9:30 AM ET) lets traders react to overnight earnings reports, economic data, or news before the regular session begins.