Trading Jobs Trading Risk Management

Question 1

What does 'Value at Risk' (VaR) measure?

Accepted Answer

The maximum expected loss over a given time period at a specified confidence level

Answer

The average daily loss in a portfolio

Answer

The total capital at risk in a trade

Answer

The difference between market and book value

Question 2

What is 'position sizing' in trading risk management?

Accepted Answer

Determining the appropriate amount of capital to allocate per trade

Answer

The total number of open positions in a portfolio

Answer

The maximum position size allowed by regulations

Answer

The ratio of long to short positions

Question 3

What is a 'stop-loss order' used for in trading?

Accepted Answer

Automatically closing a losing position at a predetermined price

Answer

Locking in profits at a target price

Answer

Preventing a position from growing too large

Answer

Stopping trading when daily loss limits are reached

Question 4

What is 'leverage' in trading and why does it increase risk?

Accepted Answer

Trading with borrowed capital, which amplifies both gains and losses

Answer

The use of derivatives instead of direct positions

Answer

Trading across multiple asset classes simultaneously

Answer

Using algorithmic systems instead of manual trading

Question 5

What is 'mark-to-market' (MTM) accounting in trading?

Accepted Answer

Revaluing positions at current market prices daily

Answer

Revaluing positions at historical cost

Answer

Calculating the book value of a trading firm

Answer

Recording trades only when they are settled

Question 6

What is 'counterparty risk' in financial trading?

Accepted Answer

The risk that the other party in a trade defaults on their obligations

Answer

The risk that market prices move against a position

Answer

The risk of trading the wrong security by mistake

Answer

The risk of technology failures during trading