Stock Trading Technology & Digital Applications 2

Question 1

What does the term 'algorithmic trading' refer to?

Accepted Answer

Using computer programs to execute trades based on predefined rules

Answer

Algorithmic trading uses automated programs to execute orders based on criteria like price, volume, or timing.

Question 2

Which order type is typically used by algorithmic traders to avoid moving the market when buying large positions?

Accepted Answer

TWAP (Time-Weighted Average Price) order

Answer

TWAP orders spread large trades over time to minimize market impact and avoid price slippage.

Question 3

What is 'latency' in the context of electronic trading?

Accepted Answer

The delay between sending a trade order and its execution

Answer

Latency refers to the time delay in transmitting trade orders, which is critical in high-frequency trading environments.

Question 4

A trader uses a Direct Market Access (DMA) platform. What is the primary advantage?

Accepted Answer

Bypassing intermediaries to place orders directly on exchange order books

Answer

DMA allows traders to route orders directly to an exchange's order book, reducing intermediary delays and costs.

Question 5

Which technology do most US stock exchanges use to display real-time quotes to traders?

Accepted Answer

Level II quotes from market makers and ECNs

Answer

Level II quotes show the full depth of the order book, displaying bids and asks from multiple market makers and ECNs.

Stock Trading Practice Test