Stock Broker Market Structure & Trading Mechanics

Question 1

What is the 'bid-ask spread' in securities trading?

Accepted Answer

The difference between the highest price buyers will pay and the lowest price sellers will accept

Answer

The difference between a stock's 52-week high and low

Answer

The fee charged by the exchange per trade

Answer

The gap between pre-market and regular session prices

Question 2

What is a 'market order' in securities trading?

Accepted Answer

An order to buy or sell immediately at the best available current market price

Answer

An order to buy or sell at a specific price or better

Answer

An order that expires at the end of the trading day

Answer

An order that executes only in after-hours trading

Question 3

On the NYSE, which participant is responsible for maintaining a fair and orderly market by standing ready to buy or sell a specific stock?

Accepted Answer

Designated Market Maker (DMM)

Answer

Retail investor

Answer

Floor broker

Answer

Compliance officer

Question 4

What does 'short selling' involve?

Accepted Answer

Selling borrowed shares with the obligation to buy them back later, profiting if the price falls

Answer

Buying shares with borrowed money

Answer

Selling shares you own at a loss for tax purposes

Answer

Trading securities in less than one minute

Question 5

What is a 'circuit breaker' in US equity markets?

Accepted Answer

A regulatory mechanism that halts trading when major indexes fall by specified percentages

Answer

A tool that disconnects computers during power surges

Answer

A rule limiting the number of trades per second

Answer

A device used to limit short selling

Question 6

What is the 'T+1' settlement standard for US equity trades?

Accepted Answer

Trades settle (transfer of securities and cash) one business day after the trade date

Answer

Trades must be executed within 1 hour

Answer

Trades must be reported to FINRA within 1 day

Answer

Investors must hold shares for at least 1 day