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What is the primary goal of liability trading desks within the context of trading strategy?

  • To avoid trading illiquid stocks altogether
  • To manage cash reserves effectively
  • To maximize profits through high-risk trades
  • To facilitate difficult trades to encourage future business (correct)
  • What is restricted by the trading limits imposed on traders?

  • Holding or trading more than 50,000 shares at any time (correct)
  • Traders can only short sell but cannot buy
  • All trades must be executed at a premium price
  • Traders cannot submit any market orders
  • When traders exceed their long position without selling before the time limit, what consequence do they face?

  • They will be eligible for increased trading limits
  • They incur a fine for breaking the trading limit (correct)
  • They will receive a bonus for quick trades
  • They have their trading accounts frozen
  • What does the trading strategy emphasize once the 2-minute mark is reached for positions?

    <p>Assessment based on accumulated Profits &amp; Losses (P&amp;L)</p> Signup and view all the answers

    Which of the following best describes the relationship between liquid and illiquid assets in trading strategies?

    <p>Facilitating illiquid trades helps enhance future liquid asset opportunities.</p> Signup and view all the answers

    What occurs if a trader's outstanding positions breach trading limits due to automatic orders?

    <p>They must cover their positions before further orders are executed.</p> Signup and view all the answers

    What indicates that a trader has improperly executed their trading strategy?

    <p>Having a profit less than -$1,000</p> Signup and view all the answers

    When is the VWAP trading methodology typically measured against traders?

    <p>In cases where accumulated P&amp;L is not applicable</p> Signup and view all the answers

    What is a key characteristic of a liability trade?

    <p>It involves selling a large block of shares at a discount.</p> Signup and view all the answers

    Which strategy is least likely to succeed in a random walk market?

    <p>Predicting price movements based on past trends.</p> Signup and view all the answers

    What trading approach best aligns with achieving the market VWAP?

    <p>Purchasing shares intermittently throughout the trading session.</p> Signup and view all the answers

    What is one consequence of regulatory rules on block trades?

    <p>They often restrict trading outside the National Best Bid and Offer (NBBO).</p> Signup and view all the answers

    Why might a trader choose to hedge exposure after a liability trade?

    <p>To protect against adverse price changes in the future.</p> Signup and view all the answers

    Which scenario best illustrates an illiquid asset?

    <p>A real estate property that rarely changes hands.</p> Signup and view all the answers

    What impact do computerized traders have on a class-wide trading flow?

    <p>They provide sufficient liquidity to minimize the effect of manual trades.</p> Signup and view all the answers

    What term is often used interchangeably with liability trading?

    <p>Principal trading</p> Signup and view all the answers

    What is a key characteristic of illiquid markets that affects trading strategies?

    <p>Large trades can significantly affect the price of the asset.</p> Signup and view all the answers

    Which statement defines liability trading strategies in the context of the simulation described?

    <p>Traders generate direct profits or losses based on their trading decisions.</p> Signup and view all the answers

    What is the primary advantage of using limit orders over market orders in trading?

    <p>Limit orders ensure execution at a predefined price or better.</p> Signup and view all the answers

    How does the use of VWAP (Volume Weighted Average Price) improve trading performance?

    <p>It allows traders to execute large orders without buying into the highest market prices.</p> Signup and view all the answers

    What could be a consequence of failing to manage risk effectively while trading in illiquid markets?

    <p>Potential for substantial losses due to price impact from large orders.</p> Signup and view all the answers

    Which statement best describes the effectiveness of internalizing retail trade flow by brokers?

    <p>Brokers must provide price improvement to maintain client satisfaction.</p> Signup and view all the answers

    What is a possible impact of market regulations on trading strategies?

    <p>Traders may need to adjust their strategies to comply with legal requirements.</p> Signup and view all the answers

    In what way does the concept of 'making the bid-ask spread' benefit traders?

    <p>It enables traders to earn a profit by buying at the bid and selling at the ask.</p> Signup and view all the answers

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