Stock Jobs Stock Market Liquidity 5

Question 1

High-frequency trading firms are often credited with doing what to liquidity?

Accepted Answer

Adding liquidity through rapid two-sided quoting

Answer

Many HFT strategies post frequent buy and sell quotes, narrowing spreads and adding liquidity.

Question 2

The difference between 'displayed' liquidity and 'hidden' liquidity refers to what?

Accepted Answer

Orders visible in the book versus undisclosed orders

Answer

Hidden or iceberg orders are not fully shown in the public order book, unlike displayed orders.

Question 3

Which factor would most likely WIDEN the bid-ask spread on a stock?

Accepted Answer

Increased uncertainty and lower volume

Answer

Uncertainty and thin volume make market makers demand wider spreads for risk.

Question 4

Liquidity providers typically earn their profit from what?

Accepted Answer

Capturing the bid-ask spread

Answer

By buying at the bid and selling at the ask, liquidity providers earn the spread.

Question 5

A company's 'free float' refers to what?

Accepted Answer

Shares available for public trading

Answer

Free float is the portion of shares freely tradable by the public, a key driver of liquidity.

Stock Jobs Practice Test