Stock Trading MCQs
Stock Trading MCQs
Our experts have gathered these Stock Trading MCQs through research, and we hope that you will be able to see how much knowledge base you have for the subject of Stock Trading by answering these 90+ multiple-choice questions.
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1: For which of the following reasons are both fundamental and technical analyses criticized?
A. Because neither can accurately predict future stock price movements
B. Because it is difficult to decide which one will help a person make more money
C. Because the numbers needed are not readily available
D. Because there are other strategies which work better
2: Which of the following would not be an example of managing risk?
A. Investing completely in a new biotech firm
B. Diversifying an investment to ten different companies
C. Purchasing three mutual funds
D. Buying both stocks and bonds
3: Why is it important to write down trading goals?
A. So that they may become more real and not be forgotten
B. So that you may be able to throw them out if you are unable to meet them
C. So that you may be able to tell people you are a successful trader because you set goals
D. So that you may be able to ensure success
4: Which of the following is a risk of trading stocks on a foreign stock exchange as compared to trading it domestically?
A. Growth rate risk
B. Taxation risk
C. Legal risk
D. Exchange rate risk
5: What is meant by a "leading indicator"?
A. A market statistic which changes after a change in stock prices
B. A report put out by the stock market
C. Insider information
D. A market statistic which typically indicates ahead of time what the market will do
6: What is the main advantage of a stop loss order?
A. It limits all risk.
B. It protects the investor's profit without his having to monitor the stock price constantly.
C. It limits an investor's profit.
D. It creates opportunities for a straddle.
A. Short selling stocks
B. Long term returns over time
C. Risky trading
D. Short term returns
8: What happens to an investment if risk is mitigated properly?
A. Nothing specific happens to any one investment; risk mitigation is an overall portfolio tool.
B. The stocks you purchase are guaranteed to increase.
C. It makes for a zero sum game, with no losses or profits.
D. Risk is assigned to someone else.
9: Which of the following is a way to quantify the risk of a given security?
A. Looking at what peers think of the stock
B. Using technical analysis
C. Using fundamental analysis
D. Calculating the probability and magnitude of potential loss
10: What is a good indicator of a stock being volatile?
A. The stock price has highs of $50 and lows of $35 in the previous year.
B. The graph of the stock indicates it hits new highs and lows almost monthly.
C. The management is not qualified.
D. The stock does not declare dividends.
11: What is the purpose of using screening factors?
A. They help focus on a specific industry.
B. They guarantee against any losses.
C. They help investors decide when to exit an investment.
D. They are preset criteria that any investment must meet before an investor will consider it a viable investment.
12: Which of the following would a fundamental analyst examine?
A. Managerial reviews
B. Financial forecasts
C. Company strategy plans
D. Company financial statements
13: What is the "gap" trading strategy?
A. Trading a stock when its opening price is different from the previous day's closing price
B. Trading stock in the company GAP
C. Looking for consistent companies who return large dividends
D. Buying and selling the same stock at different prices at the same moment
14: How often should a trader revaluate the holdings in their portfolios?
A. Daily
B. Continuously, but not daily
C. Yearly
D. Never
15: What is meant by a "margin account"?
A. A stock account with a guaranteed margin return
B. A type of stock which sells at a discount
C. A type of account that can only trade options
D. A type of stock trading account which essentially borrows money from the stock brokerage to purchase stocks
16: What is another name for a market cycle?
A. Market Nomination
B. Economic Cycle
C. Gap Cycle
D. Straddle
17: What is the type of analysis conducted using past earnings, past stock prices, and other qualitative and quantitative facts about a company called?
A. Technical Analysis
B. Valuation
C. Break Even Analysis
D. Fundamental Analysis
18: Why would an investor invest only in companies which have a history of paying dividends?
A. Because it creates an income stream
B. Because it is a low risk investment
C. Because it creates a return on investment
D. All of the above
19: What strategy would an investor with a short time frame most likely use?
A. Buying mutual funds
B. Buying certificates of deposit
C. Investing in large blue chip stocks for the dividends
D. Day trading
20: What is a "trailing stop" order?
A. An order in which an investor actively changes the stop loss price of the order based on current market prices
B. A multi tiered stop loss order
C. A stop order placed after the purchase of the underlying stock
D. A stop order placed before buying the underlying stock
21: Which of the following would be a stock trading goal?
A. Making lots of money
B. Earning 20% return on the invested capital within 1 year
C. Trading only in bear markets
D. Selling call options
22: Why would an investor not utilize a stock trading strategy?
A. Because they cost money
B. Because of the belief that they do not work, and are a wasted effort
C. Because not enough data available
D. Because they are only for the wealthy
23: What do decreasing interest rates typically mean for the stock market?
A. Stock prices will decrease in general.
B. Stock prices will increase in general.
C. There will be no effect on stock prices at all.
D. Drastic changes in stock prices will be witnessed but it is not possible to determine in which direction.
24: How can market cycles be utilized in trading stocks?
A. They offer no help in trading stocks.
B. By indicating when to invest in bonds
C. By recognizing the declines in the market when stocks can be purchased at a lower price
D. By letting an investor know when to sell their IBM stock
25: What should a trader do if one portfolio is outperforming another?
A. Sell off all stock in the worst portfolio.
B. Switch the portfolios around so they all have the same return.
C. Depends on the goals of each portfolio; they could still all be meeting expectations.
D. Do extensive analysis on the stocks.
26: Why should goals be changeable?
A. They should not be; they should be set only once.
B. Because it allows people never to have to achieve them
C. Lest you should forget your goals.
D. So that you may be able to refine your goals on the basis of the progress you are making
27: What is meant by "stop loss order"?
A. A stock order to purchase a stock at a specific price
B. An order to purchase a stock after it has lost a percentage
C. An order placed at a price lower than the current price to liquidate a stock and maintain a profit
D. An order to purchase a stock at a specific price
28: What would be the risk tolerance level of a retired government worker in general?
A. High
B. Moderate
C. Varies indefinitely
D. Low
29: What are the obstacles to achieving stock trading goals?
A. The stock market itself
B. Inability to trade on foreign exchanges
C. A career as a stock broker
D. People or things which will require the trader to maneuver around them to reach their goals
30: What would be the appropriate limit price for the following example: A stock is currently trading at $20, and the investor believes he can buy it for 10% less.
A. $18
B. $20
C. $22
D. $17
31: Why is it important to recognize what stage of the market cycle a company is in?
A. Because companies are required by law to report the stage
B. Because it helps decide whether to hire or fire employees
C. Because it indicates what the potential growth/decline rate is going to be in the near term
D. It is not important at all.
32: What factors does technical analysis primarily rely on?
A. Financial reports
B. Management reports
C. Past Price and volume
D. Market indicators
33: Why would an investor use a limit order to buy?
A. Because they want to pay more than the current price
B. Because they want to sell the stock in the future
C. Because they want to purchase a certain stock at a price lower than its current price without constantly monitoring the stock price
D. Because they want to limit their market risk
34: What is the primary goal of technical analysis?
A. Identifying trends to predict short term price movements
B. Helping build a retirement plan
C. Identifying stocks with potential for large increases in the next two years
D. Finding indications of interest rate direction
35: Why would a trader liquidate a portfolio?
A. Because it is illegal to hold it too long
B. To avoid being labeled as a day trader
C. Because it has made too much money already
D. Because he is no longer interested in the classification of stock
36: What is portfolio management?
A. Having a suite of investments to reach a goal while minimizing risk
B. Buying shares all in one industry
C. Actively trading stocks in your portfolio
D. Selling securities which are not performing
37: What is meant by "technical analysis"?
A. An analysis which uses fundamental information about a company
B. An analysis which is done on a stock after it is purchased
C. An analysis technique which utilizes both qualitative and quantitative factors
D. A stock price analysis technique using technical aspects of a stock
38: What market stage would a company focus on for increasing sales?
A. Growth
B. Idea stage
C. Decline
D. Peak
39: Which of the following is not one of the cycles in the market?
A. Growth
B. Idea stage
C. Decline
D. Rapid recession
40: How can a trader implement a goal always to earn 10% on stocks, and never to lose more than 2%?
A. By setting limit and stop loss orders on all transactions using those criteria
B. By actively watching the stocks and try to judge when to sell
C. BY using it as a loose guideline
D. By asking their friends to keep them on track
41: What happens to a stop loss order when the trigger price is reached?
A. The order converts to a market order to sell.
B. The seller is notified to log into their account to execute the order.
C. The stock is purchased.
D. An options contract is sold for the security at the trigger price.
42: What is the purpose of a stop loss order?
A. To set a purchase price on a stock
B. To write an option contract at the trigger price
C. To sell a stock at the purchase price before losing money
D. To protect profits already made on a stock investment
43: What form of analysis would a "Value Investor" utilize to identify stock opportunities?
A. Fundamental Analysis
B. Technical Analysis
C. Capital Asset Pricing Model
D. All of the above
44: When is the straddle trading strategy appropriate?
A. When the price may move by a small amount
B. When an investor believes there will be a large decrease in stock prices
C. When an investor believes there will be a large increase in stock prices
D. When an investor believes there will be a large stock price movement, but does not know in which direction
45: Which of the following would be a good example of risk mitigation?
A. Purchasing only small cap stocks
B. Purchasing stocks in three industries
C. Purchasing stocks all in one industry
D. Purchasing only blue chip stocks
46: What would a company at the peak of the business cycle consider doing?
A. Selling off the division
B. Reworking the product or offering an additional product, as the current product is likely to start declining
C. Spending on marketing to increase sales
D. Hiring additional staff
47: What is a "speculative stock"?
A. A stock which has a proven track record for slow growth
B. A stock which is high risk and has the potential for large returns or large losses
C. A stock with a guaranteed return
D. A stock which trades on the NASD
48: What is meant by "day trading"?
A. Trading during market hours
B. Trading stocks on foreign markets
C. Purchasing stocks and selling them on the same day
D. Holding stocks for a short period of time, not more than a week
49: What is the duration of a market cycle?
A. One year
B. Depends on the product, market, economic situation, and cannot be stated
C. Limited to 10 years at the most
D. Typically two years
50: What is meant by using the straddle stock trading strategy?
A. Selling a call option and purchasing a put option
B. Purchasing two call options at different prices
C. Owning both call and put stock options at the same stock price
D. Purchasing two put options at different prices
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