Stock Jobs Stock Market Liquidity 4

Question 1

A dark pool is a trading venue designed primarily to do what?

Accepted Answer

Execute large orders with reduced market impact

Answer

Dark pools let institutions trade large blocks without revealing intentions and moving prices.

Question 2

Which of these typically reduces a stock's liquidity?

Accepted Answer

A small public float

Answer

A small float means fewer shares are available to trade, lowering liquidity.

Question 3

The Amihud illiquidity ratio measures liquidity by relating price change to what?

Accepted Answer

Trading volume

Answer

The Amihud measure captures how much price moves per unit of trading volume.

Question 4

When a stock is added to a major index like the S&P 500, its liquidity usually does what?

Accepted Answer

Increases due to fund buying and attention

Answer

Index inclusion brings index-fund demand and more trading, raising liquidity.

Question 5

Which is a benefit of high liquidity for everyday investors?

Accepted Answer

Tighter spreads and easier entry/exit

Answer

High liquidity lowers trading costs and makes it easier to buy or sell at fair prices.

Stock Jobs Practice Test