Day Trading Order Types & Trade Execution 1 — Questions and Answers
Question 1: What is a market order in day trading?
- An order that executes immediately at the best available current price (Correct answer)
- An order to buy or sell at a specific price or better
- An order that cancels automatically if not filled within seconds
- An order that remains active until a specific calendar date
Correct answer: An order that executes immediately at the best available current price
A market order executes immediately at the best available price, prioritizing speed of execution over price certainty.
Question 2: When placing a buy limit order, the order will execute only:
- At any price the market is currently trading at
- At the limit price or lower (Correct answer)
- At the limit price or higher
- Immediately regardless of the current price
Correct answer: At the limit price or lower
A buy limit order executes only at the specified limit price or lower, ensuring the trader never pays more than their maximum acceptable price.
Question 3: The 'bid' price in a stock quote represents:
- The price at which sellers are willing to sell shares
- The most recent executed transaction price
- The highest price a buyer is currently willing to pay (Correct answer)
- The average of the last five transaction prices
Correct answer: The highest price a buyer is currently willing to pay
The bid is the highest price a buyer is currently willing to pay for a security; buyers compete by raising their bids to attract sellers.
Question 4: Slippage in day trading refers to:
- A penalty fee charged for canceling an unfilled order
- The difference between the expected execution price and the actual fill price (Correct answer)
- The time delay between order submission and order confirmation
- A broker's commission applied to each completed transaction
Correct answer: The difference between the expected execution price and the actual fill price
Slippage occurs when the actual execution price differs from the expected price, typically in fast-moving or illiquid markets where prices shift before the order fills.
Question 5: A stop-loss order is primarily used to:
- Lock in profits at a predetermined target price
- Enter a new position at an advantageous price level
- Limit losses by triggering a sell when price falls to a specified level (Correct answer)
- Purchase additional shares at a cheaper price to average down
Correct answer: Limit losses by triggering a sell when price falls to a specified level
A stop-loss order automatically triggers a sell when price falls to the stop level, capping the trader's loss on a position.
Question 6: A 'Day' order designation means the order:
- Is valid for exactly 24 hours from the time it was placed
- Expires at the end of the current trading session if not filled (Correct answer)
- Can only be submitted during regular market hours
- Executes only at the market open bell
Correct answer: Expires at the end of the current trading session if not filled
A day order automatically expires at the end of the current trading session (4:00 PM ET for US stocks) if it has not been executed.
Question 7: An Electronic Communication Network (ECN) in day trading is:
- Software used to plot and analyze technical chart indicators
- A type of brokerage account designed specifically for beginner traders
- An automated system that electronically matches buy and sell orders (Correct answer)
- A government regulatory body that oversees all market transactions
Correct answer: An automated system that electronically matches buy and sell orders
ECNs are automated trading systems that directly match buy and sell orders from various market participants, often providing faster execution and tighter bid-ask spreads.
Day Trading Order Types & Trade Execution 1
What is a market order in day trading?