Question 1

What is the bid-ask spread in trading?

Accepted Answer

The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask) for a security. For example, if a stock has a bid of $49.95 and ask of $50.05, the spread is $0.10.

Question 2

What does leverage mean in trading?

Accepted Answer

Leverage is the use of borrowed capital to increase potential returns of an investment, which also increases potential losses. Using 2:1 leverage means controlling $20,000 worth of stock with only $10,000 of your own money.

Question 3

What is the difference between support and resistance?

Accepted Answer

Support is a price level where a security tends to find buying interest and stop declining, while resistance is a price level where it tends to stop rising due to selling pressure. These levels are often marked by previous lows (support) and highs (resistance).

Question 4

What is the difference between bull and bear markets?

Accepted Answer

A bull market is a prolonged period of rising prices and investor optimism, typically characterized by 20% or greater gains from recent lows. A bear market is a sustained decline of 20% or more from recent highs, reflecting investor pessimism and selling pressure.

Question 5

What does RSI mean in trading?

Accepted Answer

RSI (Relative Strength Index) is a momentum oscillator ranging from 0 to 100 that measures the speed and change of price movements. RSI above 70 typically indicates overbought conditions, while below 30 suggests oversold conditions.

Question 6

What is a stop loss order?

Accepted Answer

A stop loss is an order to sell a security when it reaches a certain price, designed to limit losses on a position. For example, setting a stop loss at $45 on a stock bought at $50 limits maximum loss to $5 per share.

Question 7

What is cryptocurrency?

Accepted Answer

Cryptocurrency is digital or virtual currency secured by cryptography, typically decentralized and based on blockchain technology. Bitcoin is the first and most well-known cryptocurrency, created in 2009.

Question 8

What is a pip in forex trading?

Accepted Answer

A pip is the smallest price move in a currency exchange rate, typically the fourth decimal place in most currency pairs. If EUR/USD moves from 1.1234 to 1.1235, that's a movement of 1 pip.

Question 9

What are options in trading?

Accepted Answer

Options are financial contracts that give the holder the right, but not obligation, to buy or sell an asset at a specific price within a certain timeframe. A call option gives the right to buy, while a put option gives the right to sell.

Question 10

What is volatility in trading?

Accepted Answer

Volatility is the degree of variation in a security's price over time, measuring how much and how quickly prices change. A stock that moves 5% daily has higher volatility than one that moves 1% daily.

Question 11

What is diversification in investing?

Accepted Answer

Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio to minimize exposure to any single asset. For example, investing in stocks, bonds, real estate, and commodities rather than putting all money in just technology stocks.

Question 12

What is market cap?

Accepted Answer

Market cap is the total value of a company's shares in the stock market, calculated by multiplying share price by number of outstanding shares. If a company has 100 million shares at $50 each, its market cap is $5 billion.

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