Stock Jobs Stock Trading Strategies 2 — Questions and Answers
Question 1: What is 'short selling' in the stock market?
- Selling stocks you own at a loss
- Borrowing shares to sell them, then repurchasing at a lower price for profit (Correct answer)
- Selling stocks within 24 hours of purchase
- Selling a small portion of your portfolio
Correct answer: Borrowing shares to sell them, then repurchasing at a lower price for profit
Short selling involves borrowing shares from a broker, selling them at the current price, and buying them back later at a lower price to profit from the decline.
Question 2: What is a 'covered call' options strategy?
- Buying call options without owning the underlying stock
- Selling call options on stock you already own to generate income (Correct answer)
- Covering losses with offsetting call purchases
- Calling your broker to cover margin requirements
Correct answer: Selling call options on stock you already own to generate income
A covered call involves selling call options on shares you already own, generating premium income while potentially capping upside gains.
Question 3: What is 'arbitrage' in stock trading?
- Resolving disputes between brokers
- Profiting from price differences of the same asset in different markets (Correct answer)
- Trading based on insider information
- Arbitrarily selecting stocks to diversify
Correct answer: Profiting from price differences of the same asset in different markets
Arbitrage exploits price differences for the same security across different markets or exchanges, buying low in one and selling high in another simultaneously.
Question 4: What does 'going long' mean in stock trading?
- Holding a position for more than one year for tax purposes
- Buying a security with the expectation its price will rise (Correct answer)
- Investing in long-duration bonds
- Taking a multi-year subscription to a trading platform
Correct answer: Buying a security with the expectation its price will rise
Going long means buying a security with the expectation that its price will increase, allowing you to sell it later at a profit.
Question 5: What is a 'stop-loss order' used for in trading?
- To stop all trading activity at end of day
- To automatically sell a security when it drops to a specified price to limit losses (Correct answer)
- To prevent brokers from charging excessive fees
- To pause a trading account during volatility
Correct answer: To automatically sell a security when it drops to a specified price to limit losses
A stop-loss order automatically triggers a sale when a stock reaches a predetermined price, protecting traders from further losses.
Question 6: What is 'algorithmic trading'?
- Trading stocks based on mathematical puzzles
- Using computer programs to execute trades based on predefined rules and conditions (Correct answer)
- Manual trading using complex spreadsheet formulas
- Trading only algorithmically-selected index funds
Correct answer: Using computer programs to execute trades based on predefined rules and conditions
Algorithmic trading uses automated computer programs that execute trades based on predefined criteria such as price, volume, and timing.
Stock Jobs Stock Trading Strategies 2
What is 'short selling' in the stock market?