Day Trading Order Types & Trade Execution 2 — Questions and Answers
Question 1: How does a stop-limit order differ from a regular stop-loss order?
- A stop-limit order does not require a stop trigger price
- After the stop price is triggered, a stop-limit places a limit order instead of a market order (Correct answer)
- A stop-limit order executes immediately at the current market price
- Stop-limit orders can only be used for buying, not for selling
Correct answer: After the stop price is triggered, a stop-limit places a limit order instead of a market order
Once the stop price is reached, a stop-limit order places a limit order rather than a market order, giving price control but risking non-execution if the market moves past the limit price quickly.
Question 2: Level 2 quotes provide day traders with:
- Real-time news headlines and press releases about their holdings
- The full order book showing bids and asks at multiple price levels (Correct answer)
- Historical price data and charting for technical analysis
- Analyst ratings and broker buy/sell recommendations
Correct answer: The full order book showing bids and asks at multiple price levels
Level 2 data shows all outstanding bids and asks at various price levels from multiple market participants, giving traders visibility into supply and demand depth beyond just the best bid/ask.
Question 3: A 'Fill or Kill' (FOK) order means:
- The order must be filled in multiple partial transactions over time
- The entire order quantity must be filled immediately or the order is canceled entirely (Correct answer)
- The order remains active until it is completely filled regardless of how long it takes
- Only half the order quantity needs to fill before the rest is canceled
Correct answer: The entire order quantity must be filled immediately or the order is canceled entirely
A FOK order requires the entire quantity to be filled immediately and in full; if this cannot be done instantly, the entire order is canceled with no partial fills accepted.
Question 4: The 'ask' price in a stock quote represents:
- The price a buyer is currently willing to pay for shares
- The most recently executed transaction price in the market
- The lowest price a seller is currently willing to accept (Correct answer)
- The average price over the past five trading minutes
Correct answer: The lowest price a seller is currently willing to accept
The ask (or offer) price is the minimum price at which a seller is willing to sell shares; it is always higher than the bid price, and the difference is the bid-ask spread.
Question 5: A trailing stop order differs from a fixed stop-loss in that it:
- Only functions during pre-market and after-hours trading sessions
- Automatically adjusts its trigger price as the stock moves in your favor (Correct answer)
- Requires the trader to manually update the stop price each trading day
- Triggers at a fixed percentage below only the opening price of the day
Correct answer: Automatically adjusts its trigger price as the stock moves in your favor
A trailing stop dynamically adjusts its trigger price as the stock moves in the profitable direction by a set dollar amount or percentage, locking in gains while providing downside protection.
Question 6: The 'GTC' time-in-force designation stands for:
- 'Get The Cash,' meaning an order to liquidate the position immediately
- 'Good Till Canceled,' meaning the order remains active until manually canceled (Correct answer)
- 'General Trading Committee,' a regulatory classification for orders
- 'Go To Close,' meaning the order executes at the end of the session
Correct answer: 'Good Till Canceled,' meaning the order remains active until manually canceled
Good Till Canceled (GTC) orders remain active until the trader manually cancels them, though most brokers impose a maximum duration (typically 60–90 calendar days).
Question 7: Direct Access Trading (DAT) allows day traders to:
- Trade directly with other retail investors without any broker involvement
- Route orders directly to specific exchanges or ECNs for faster and more precise execution (Correct answer)
- Access non-public company information through licensed broker platforms
- Execute trades exclusively during extended after-hours sessions
Correct answer: Route orders directly to specific exchanges or ECNs for faster and more precise execution
Direct Access Trading routes orders straight to specific market destinations such as exchanges, ECNs, or market makers, bypassing traditional order handling for superior speed and execution control.
Day Trading Order Types & Trade Execution 2
How does a stop-limit order differ from a regular stop-loss order?