Trading Basics Flashcards

What is a 'circuit breaker' in US stock market trading?

Answer: A regulatory halt triggered when major indexes drop by set percentages

Circuit breakers are market-wide trading halts triggered when the S&P 500 drops 7%, 13%, or 20% in a single day to prevent panic selling.

Which metric measures how many shares of a stock trade on average per day?

Answer: Average daily volume (ADV)

Average daily volume (ADV) is the average number of shares traded per day over a specified period, indicating a stock's liquidity.

What happens to a day trader's PDT status if their account drops below $25,000?

Answer: They may be restricted to 3 round-trip trades per 5 rolling business days

If a PDT-flagged account falls below $25,000, the broker typically restricts the trader to 3 day trades per 5 rolling business days.

What is a 'float' in the context of a stock?

Answer: The portion of shares available for public trading

Float refers to the number of shares available for public trading, excluding restricted shares held by insiders and major shareholders.

In day trading, what does VWAP stand for and why is it used?

Answer: Volume-Weighted Average Price; used as a benchmark to assess trade quality

VWAP (Volume-Weighted Average Price) is the average price weighted by volume and is used by traders and institutions as a benchmark for intraday trade execution quality.

Which of the following is a characteristic of a 'bear market'?

Answer: A sustained decline of 20% or more from recent highs

A bear market is conventionally defined as a decline of 20% or more in a broad market index from its most recent peak.

What is the role of a market maker in stock trading?

Answer: To provide liquidity by continuously quoting bid and ask prices

Market makers provide liquidity to markets by continuously quoting both a buy (bid) and sell (ask) price, profiting from the spread.