FRM Advanced Topics 1

Question 1

What is the purpose of backtesting a trading strategy?

Accepted Answer

Testing a strategy against historical data to evaluate its potential performance before risking real money

Answer

Testing your internet speed

Answer

Testing a new exchange platform

Answer

Backing up trade data

Question 2

What is a trailing stop order?

Accepted Answer

A stop-loss that automatically adjusts upward as the price rises, locking in profits while protecting against reversals

Answer

A stop order that follows you

Answer

A permanent stop order

Answer

An order placed at market close

Question 3

What is algorithmic trading?

Accepted Answer

Using computer programs to automatically execute trades based on predefined rules and conditions

Answer

Trading alphabetically

Answer

A manual trading strategy

Answer

Trading algorithms as assets

Question 4

What is a short squeeze?

Accepted Answer

A rapid price increase that occurs when short sellers are forced to buy back shares, driving the price even higher

Answer

A type of juice

Answer

A market crash

Answer

A broker fee

Question 5

What is paper trading?

Accepted Answer

Practicing trading with simulated money to test strategies without financial risk

Answer

Trading paper products

Answer

Trading with physical certificates

Answer

Writing trades on paper

Question 6

What is the significance of pre-market and after-hours trading?

Accepted Answer

Trading that occurs outside regular market hours, often with lower volume, wider spreads, and higher volatility

Answer

It does not exist

Answer

It is only for institutions

Answer

It follows different rules entirely