Stock Trading Risk Assessment & Management 4

Question 1

What is 'systematic risk' and which tool best measures a stock's exposure to it?

Accepted Answer

Market-wide risk that cannot be diversified away; measured by beta

Answer

Systematic risk affects the entire market and cannot be eliminated through diversification; beta measures how much a stock moves relative to the market.

Question 2

A trader's account falls from $100,000 to $70,000. What percentage gain is required to recover to break-even?

Accepted Answer

43%

Answer

A 30% loss leaves $70,000, and to recover $30,000 on a $70,000 base requires a 42.86% gain, approximately 43%.

Question 3

Which of the following best describes 'model risk' in algorithmic trading?

Accepted Answer

The risk that a trading model performs poorly in live markets due to faulty assumptions or overfitting

Answer

Model risk is the danger that a trading algorithm, built on historical data or flawed assumptions, fails to perform as expected in live markets.

Question 4

Under FINRA Pattern Day Trader (PDT) rules, what minimum equity must be maintained to day trade freely in a margin account?

Accepted Answer

$25,000

Answer

FINRA requires pattern day traders to maintain at least $25,000 in their margin accounts on any day they trade.

Question 5

What is 'gap risk' in stock trading?

Accepted Answer

The risk that a stock opens significantly higher or lower than the previous close, bypassing stop orders

Answer

Gap risk occurs when news after market close causes a stock to open far from the prior close, making stop-loss orders fill at much worse prices.

Stock Trading Practice Test

Stock Trading Practice Test

Stock Trading Risk Assessment & Management 4