Stock Broker Market Structure & Trading Mechanics 2

Question 1

What is 'Level 2' market data and who primarily uses it?

Accepted Answer

Real-time data showing all bid/ask quotes from all market makers; active traders and professionals

Answer

Level 2 market data shows real-time quotes from all market makers for a security, displaying the full depth of the order book, and is primarily used by active traders and market professionals.

Question 2

Which type of order becomes a market order once a specified price threshold is reached, often used to limit losses?

Accepted Answer

Stop order (stop-loss order)

Answer

A stop order (stop-loss) is set at a trigger price; once the security trades at or through that price, the stop converts to a market order and executes at the next available price.

Question 3

What is 'dark pool' trading?

Accepted Answer

Private trading venues where large institutional orders are executed without pre-trade price transparency

Answer

Dark pools are private exchanges or forums for trading securities where large institutional orders can be executed without revealing the order size or price to the public market before the trade occurs.

Question 4

What distinguishes a 'primary market' transaction from a 'secondary market' transaction?

Accepted Answer

Primary market is where new securities are first issued (IPO); secondary market is where existing securities are traded among investors

Answer

In the primary market, issuers sell newly created securities (like in an IPO) directly to investors for the first time; in the secondary market, investors trade existing securities among themselves.

Question 5

What is the 'uptick rule' (Rule 10a-1 / Rule 201) related to short selling?

Accepted Answer

A rule that restricts short selling of a stock that has declined more than 10% in one day

Answer

Rule 201 (the alternative uptick rule) restricts short selling of a security that has dropped more than 10% in a single day, requiring that subsequent short sales be made at a price above the national best bid.

Stock Broker Practice Test

Stock Broker Practice Test

Stock Broker Market Structure & Trading Mechanics 2