Trading Jobs Trading Risk Management 2

Question 1

What is 'beta' as a risk measure in trading?

Accepted Answer

The sensitivity of an asset's returns relative to a benchmark

Answer

Beta measures how much an asset tends to move relative to a benchmark (usually the S&P 500); a beta of 1.5 means the asset moves 1.5% for every 1% benchmark move.

Question 2

What is 'drawdown' in the context of a trading strategy?

Accepted Answer

The peak-to-trough decline in portfolio value before a new peak is reached

Answer

Drawdown measures the peak-to-trough decline in portfolio value, indicating how much a strategy has lost from its highest point before recovering.

Question 3

What does 'Sharpe ratio' measure in trading performance?

Accepted Answer

Risk-adjusted return relative to a risk-free rate

Answer

The Sharpe ratio measures return per unit of risk, calculated as (portfolio return - risk-free rate) / portfolio standard deviation.

Question 4

What is 'liquidity risk' in trading?

Accepted Answer

The risk of being unable to exit a position at a fair price due to lack of buyers or sellers

Answer

Liquidity risk is the risk that a trader cannot close or modify a position quickly without significantly impacting the market price.

Question 5

What is 'concentration risk' in a trading portfolio?

Accepted Answer

Over-exposure to a single security, sector, or correlated group of assets

Answer

Concentration risk occurs when a portfolio is overly exposed to a single position, sector, or factor, leaving it vulnerable to adverse moves in that specific area.

Trading Jobs Practice Test

Trading Jobs Practice Test

Trading Jobs Trading Risk Management 2