21 cards · Stock Market & Investing · answer each one, then read the explanation. Your score tallies below. Looking for Stop-loss vs stop-limit orders, a worked example? Read the explainer.
On a stock exchange, the 'bid price' is $49.90 and the 'ask price' is $50.10. What does this bid-ask spread of $0.20 represent?
AThe minimum amount by which the stock price can change in a single trade, also known as the tick size
BThe daily price change of the stock, indicating it has moved $0.20 since the market opened
CThe difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept — it represents a transaction cost to investors and a source of revenue for market makers who bridge the gap
DA regulatory fee imposed by the exchange on every trade, collected and shared equally between the buyer and the seller
Correct answer: .
The bid-ask spread is the difference between the highest price a buyer is currently willing to pay (bid) and the lowest price a seller is willing to accept (ask). An investor buying at the ask and immediately selling at the bid would lose $0.20 per share, making the spread an implicit transaction cost. Market makers earn revenue by continuously quoting bid and ask prices, buying at the bid and selling at the ask. Narrower spreads indicate more liquid markets. The option describing a daily price change confuses the spread with price movement. The option calling it a regulatory fee is wrong — exchange fees are separate from the spread. The option describing tick size confuses two different concepts — tick size is the minimum price increment set by the exchange, not the spread between best bid and best ask.
Source: SEC, 'Bid and Ask', Investor.gov; NYSE Market Structure Guide
A company announces a cash dividend of $2.00 per share with an ex-dividend date of March 15. An investor buys shares on March 15 itself. Will they receive this dividend?
AYes — the ex-dividend date is the last day to buy shares and still receive the dividend, so purchasing on March 15 qualifies the investor
BNo — the ex-dividend date is the first day the stock trades without the right to the declared dividend, so buyers on or after March 15 do not receive it; only shareholders who held the stock before that date (the 'record date' holders) are entitled to the payment
CIt depends on whether the investor uses a market order or a limit order — market orders receive dividends but limit orders do not
DYes, but the investor receives only half the dividend amount because they bought on the boundary date rather than before it
Correct answer: .
The ex-dividend date is the first trading day on which new buyers are not entitled to the upcoming dividend. To receive the dividend, an investor must own the shares before the ex-dividend date — meaning they must purchase on or before the day before the ex-date to settle in time for the record date (under the standard T+1 settlement cycle). The stock price typically drops by approximately the dividend amount at the open on the ex-date, reflecting the loss of the dividend right. The option claiming the ex-date is the last qualifying day has the definition backwards. The option about order types is fabricated — dividend entitlement depends on ownership timing, not order type. The option about half the dividend has no basis in any exchange or corporate dividend rule.
Source: SEC, Investor.gov, 'Ex-Dividend Dates'; NYSE Listed Company Manual
An investor places a stop-loss order at $45 for a stock currently trading at $50. The next morning, the stock opens at $42 following overnight bad news, with no trades occurring between $45 and $42. What most likely happens to the stop-loss order?
AThe stop-loss order remains pending and will not trigger until the stock trades back up to $45, because stop orders only activate on upward price crossings
BThe stop-loss order executes at exactly $45 because the exchange is required to fill it at the specified price regardless of where the market opens
CThe stop-loss order is automatically cancelled by the exchange because the stock gapped past the stop price without trading through it
DThe stop-loss order triggers at the open and converts to a market order, executing at or near $42 — not $45 — because a stop-loss guarantees activation at the stop price but not execution at that price, and a gap-down can cause the fill to be significantly below the stop
Correct answer: .
A stop-loss order becomes a market order once the stock trades at or below the stop price. In a gap-down scenario where the stock opens well below the stop price, the order triggers at the open and executes at the prevailing market price — in this case around $42, not the $45 stop price. This is a critical limitation of stop-loss orders: they do not guarantee a specific execution price, only that the order becomes active once the trigger level is breached. The option claiming execution at exactly $45 misunderstands stop orders as limit orders. The option claiming automatic cancellation is wrong — exchanges do not cancel triggered stop orders on gaps. The option waiting for $45 on an uptick describes a buy-stop, not a sell-stop; a sell-stop triggers on a downward crossing.
Which statement correctly distinguishes how the New York Stock Exchange (NYSE) and the Nasdaq stock market are structured?
ANYSE uses a single designated market maker (DMM) per listed stock who runs opening and closing auctions and has an obligation to help maintain a fair and orderly market, while Nasdaq is a dealer market where multiple competing market makers post bid and ask quotes for the same stock
BNasdaq is a physical trading floor where human brokers manually execute every trade, while NYSE is a fully electronic market with no assigned market makers at all
CNYSE only lists government bonds and Treasury securities, while Nasdaq exclusively lists common stock of publicly traded companies
DBoth exchanges use an identical single-market-maker auction model, differing only in which companies choose to list on each
Correct answer: .
The NYSE is an auction market built around designated market makers (DMMs), each responsible for a set of listed stocks, who run the opening and closing auctions and are obligated to help supply liquidity and dampen volatility throughout the day. Nasdaq, by contrast, is a dealer (negotiated) market with no single designated maker per stock — instead, dozens of competing market makers each post their own bid and ask quotes, and the ones offering the best prices attract the trading flow. The option describing Nasdaq as a physical floor with NYSE as floor-less has the structures backwards: Nasdaq has always been fully electronic with no trading floor, while NYSE still maintains a physical floor tied to its DMM auction model. The option claiming NYSE lists only government bonds is wrong — both exchanges primarily list common stock of operating companies; neither is a bond-only venue. The option claiming both exchanges use an identical single-market-maker model ignores the defining structural difference between a centralized auction market and a decentralized multi-dealer market.
Source: NYSE, 'Market Making and the NYSE DMM Difference' (nyse.com/data-insights); Achievable FINRA SIE study guide, 'The Markets: Nasdaq'
An investor buys $20,000 of stock on margin, putting up enough cash to satisfy Regulation T's standard 50% initial margin requirement and borrowing the rest from the broker. FINRA then requires the investor to keep equity worth at least 25% of the position's market value on an ongoing basis. If the stock price later falls enough that the investor's equity drops below this 25% maintenance minimum, what happens?
AThe broker automatically absorbs the shortfall, since Regulation T only applies to the initial purchase and imposes no ongoing obligation once the trade settles
BThe position automatically converts to a fully paid cash position, and no further borrowing, interest, or margin calls apply from that point forward
CTrading in the stock is halted exchange-wide until its price recovers back above the maintenance threshold
DThe investor receives a maintenance margin call and must deposit additional cash or securities, or have the broker liquidate part of the position, to bring equity back up to the required maintenance level (or the broker's own higher house requirement)
Correct answer: .
Margin trading involves two separate thresholds. Regulation T's 50% initial margin requirement applies only at the time of purchase, setting how much of the investor's own cash must fund the trade. Separately, FINRA imposes an ongoing 25% maintenance margin minimum (many brokers set a higher house requirement, often 30-40%) that the account's equity must continue to satisfy for as long as the position is held on margin. If the stock price falls enough that equity as a percentage of the position's market value drops below that maintenance floor, the broker issues a maintenance margin call: the investor must deposit additional cash or marginable securities, or the broker will sell part of the position (sometimes without prior notice) to restore the required equity level. The option describing Regulation T as a one-time-only obligation with no ongoing requirement ignores the separate maintenance margin rule. The option describing automatic conversion to a cash position with no further calls has no basis in margin regulation — the loan and its terms persist until repaid or the position is closed. The option describing an exchange-wide trading halt confuses an individual investor's margin shortfall, which is an account-level issue between investor and broker, with market-wide circuit breakers, which are a completely different mechanism triggered by broad index-level declines.
Source: FINRA, 'Margin Accounts' (finra.org/rules-guidance/key-topics/margin-accounts); SEC, 'Margin: Borrowing Money to Pay for Stocks' investor bulletin
US market-wide circuit breakers pause trading across all national exchanges when the S&P 500 index falls a specified percentage from the prior trading day's closing level, with three escalating thresholds: 7% (Level 1), 13% (Level 2), and 20% (Level 3). If the S&P 500 falls 13% from the prior close at 1:00 p.m. (well before the 3:25 p.m. cutoff that applies to Levels 1 and 2), what happens, and how would this differ from a 20% decline at the same time of day?
ABoth a 13% decline and a 20% decline halt market-wide trading for exactly 15 minutes, with no meaningful distinction between the two levels
BThe 13% decline (Level 2) halts market-wide trading for 15 minutes, after which trading resumes, while a 20% decline (Level 3) halts market-wide trading for the remainder of that trading day with no reopening
CA 13% decline requires case-by-case SEC approval before any halt can occur, while a 20% decline triggers an automatic and immediate delisting of every affected security
DNeither threshold actually halts trading; both only trigger a public advisory notice to investors, since halting trading on national exchanges is never permitted
Correct answer: .
Market-wide circuit breakers are SEC-approved rules, implemented by the exchanges, that halt trading across every national exchange simultaneously when the S&P 500 falls sharply from the prior day's close. The thresholds are calculated daily as point levels equal to 7%, 13%, and 20% declines. A Level 1 or Level 2 decline (7% or 13%) that occurs before 3:25 p.m. halts market-wide trading for 15 minutes, after which trading resumes as normal; the same decline occurring at or after 3:25 p.m. does not trigger a halt at all, since there's too little of the trading day left for a pause to be useful. A Level 3 decline (20%), however, halts trading for the remainder of that trading day regardless of what time it occurs. The option treating both levels identically ignores this escalation in halt duration. The option describing case-by-case SEC approval or automatic delisting invents mechanisms that don't exist in the circuit breaker rules — delisting is an unrelated corporate and exchange-listing process, not a consequence of a price decline. The option claiming neither threshold halts trading contradicts the entire purpose of the rule, which is to pause trading, not merely to advise investors.
An investor places a limit order to buy a stock and does not specify any time-in-force instructions to their broker. Under standard order-type conventions, and by contrast with a good-til-canceled (GTC) order, what happens to this order if it has not executed by the end of that day's regular trading session?
AIt automatically converts into a GTC order and remains active indefinitely until the investor manually cancels it
BIt carries over unchanged into the next trading day's regular session, with no action required from the investor
CBecause no time-in-force was specified, it defaults to a 'day' order and is automatically cancelled at the end of that trading session, meaning the investor must re-enter it the next day if they still want it active
DIt is automatically executed at that day's closing price, regardless of the limit price the investor originally specified
Correct answer: .
Unless an investor specifies otherwise, an order to buy or sell a stock defaults to a 'day' order, valid only for that trading day's regular session; if it hasn't executed by the close, it is automatically cancelled and does not carry over into the next session or into extended-hours trading. This contrasts with a good-til-canceled (GTC) order, which remains open across multiple sessions until it either executes or is manually cancelled, subject to a maximum duration many brokers impose (commonly around 60-90 days). The option claiming an unspecified order automatically becomes GTC has the default backwards — GTC must be explicitly requested, not assumed. The option claiming the order carries over unchanged to the next day ignores that day orders expire at the close precisely because no GTC instruction was given. The option describing automatic execution at the closing price regardless of the limit price misunderstands what a limit order is: a limit order only executes at the specified limit price or better, and if the market never reaches that price during the session, the (day) order simply expires unfilled rather than being force-filled at an unfavorable price.
Many retail brokers advertise 'commission-free' stock trading. Under a typical payment for order flow (PFOF) arrangement that helps fund this, which statement correctly describes how it works?
AThe broker charges no fees anywhere in the transaction chain, because the exchange itself absorbs all execution costs as a public service to retail investors
BThe investor's order is routed directly into the stock exchange's central limit order book, bypassing every market maker, and the exchange pays the broker a listing rebate for doing so
CThe company whose stock is being traded pays the broker a fee for facilitating trades in its own shares
DA wholesale market maker pays the broker for routing the investor's order to it rather than to an exchange, profiting from trading against that order flow, while the broker's duty of best execution still requires it to seek favorable terms for the customer
Correct answer: .
Under payment for order flow, a wholesale market maker pays a broker for the right to receive and execute that broker's customer orders rather than sending them to a public exchange. The market maker profits, on average, by trading against the incoming order flow, while the payments it makes to brokers help fund features like zero-commission retail trading. This arrangement doesn't eliminate the broker's regulatory obligations: the duty of best execution still requires the broker to seek the most favorable terms reasonably available for the customer's order, including any price improvement over the prevailing quote, and to periodically evaluate whether its order-routing arrangements are actually serving customers well. The option claiming the exchange absorbs all costs as a public service invents a funding mechanism that doesn't exist — exchanges are for-profit venues, not cost absorbers. The option describing direct routing into an exchange's order book with an exchange-paid rebate describes a different, unrelated practice (exchange rebates for adding liquidity) and misses PFOF's defining feature, which is that orders are routed away from exchanges to market makers. The option claiming the listed company itself pays the broker has no basis; PFOF is a broker-market-maker arrangement, not something the underlying company participates in.
Source: Congressional Research Service, 'Broker-Dealers and Payment for Order Flow' (congress.gov/crs-product/IF11800); Congressional Research Service, 'Payment for Order Flow: The SEC Proposes Reforms' (IF12332)
A private trading venue lets institutional investors buy and sell large blocks of stock without publicly displaying the price and size of their orders before execution, though the trades are still reported to a FINRA trade reporting facility shortly after they happen. What is this type of venue commonly called?
AA dark pool — an alternative trading system (ATS) that withholds pre-trade order information from public view but still meets post-trade reporting obligations
BA national securities exchange — a fully 'lit,' publicly regulated marketplace required to display every order in real time
CA specialist post — a physical location on an exchange trading floor reserved exclusively for a single designated market maker
DA clearinghouse — an entity that guarantees the settlement of trades but does not itself match buyers with sellers
Correct answer: .
A dark pool is a type of alternative trading system (ATS) designed mainly to let institutional investors trade large blocks of shares without moving the public market against themselves, since it does not broadcast the presence, price, or size of buy and sell orders the way a lit exchange does. Despite this pre-trade opacity, dark pools are not unregulated: like all ATSs, they must report completed trades to a FINRA trade reporting facility, typically within seconds, so the trade eventually appears on the consolidated tape even though it wasn't visible beforehand. The option describing a national securities exchange is the opposite of a dark pool's defining feature — exchanges are 'lit' venues required to display order information in real time. The option describing a specialist post confuses a dark pool with a physical fixture of a floor-based auction market like the NYSE, which has nothing to do with pre-trade transparency or block trading venues. The option describing a clearinghouse describes a completely different function in the trading lifecycle — guaranteeing settlement after a trade is matched — rather than a venue where buyers and sellers are matched in the first place.
Source: FINRA, 'Can You Swim in a Dark Pool?' (finra.org/investors/insights/can-you-swim-dark-pool); FINRA, 'Where Do Stocks Trade?'
An investor holding a stock currently trading at $50 wants downside protection but is worried that a plain stop order could fill far below their intended exit price during a sharp gap-down, since a plain stop order converts into a market order the instant it's triggered. To address this, they instead place a stop-limit order with a stop price of $45 and a limit price of $43. Compared with a plain stop order, what is the key trade-off created by adding that limit price?
AThe stop-limit order guarantees execution at exactly $45 no matter how far the price gaps down, eliminating slippage entirely
BAdding a limit price removes the need for a stop price altogether, so the order effectively becomes a standard limit order the moment it's entered
COnce triggered at $45, the order becomes a limit order that will only fill at $43 or better, protecting against an extremely low fill price, but this creates a real risk that the order may not execute at all if the price gaps below $43, or keeps falling, without trading back up through that level
DThe limit price component only applies to buy orders, so attaching one to this sell-side stop order has no practical effect
Correct answer: .
A stop-limit order combines a stop price, which triggers the order, with a limit price, which constrains where it can fill. Once the stock trades at or below the $45 stop price, the order becomes a limit order that will only execute at $43 or better — protecting the investor from a fill far below $43, unlike a plain stop order, which becomes a market order and can fill at whatever price is available, however low. The trade-off is execution risk: if the stock gaps below $43 on the trigger, or continues falling and never trades back up to $43 or higher, the stop-limit order simply never fills, leaving the investor holding a falling position with no protection actually realized. The option claiming guaranteed execution at exactly $45 describes a plain stop order's trigger mechanics inaccurately and ignores that the whole point of adding a limit is to cap the fill price, not guarantee one specific price. The option claiming the stop price becomes irrelevant misunderstands the order type — both the stop and limit components remain active and serve distinct roles. The option restricting the limit component to buy orders has no basis; stop-limit orders work symmetrically for both buy-side and sell-side stops.
Source: FINRA, 'Order Types' (finra.org/investors/investing/investment-products/stocks/order-types); SEC Fast Answers, 'Stop Order and Stop-Limit Order'
Since May 28, 2024, the SEC's standard settlement cycle for most US stock trades (under amended Exchange Act Rule 15c6-1(a)) is one business day after the trade date, commonly called T+1, replacing the prior two-business-day (T+2) standard. Under this T+1 standard, if an investor sells shares on a Monday, by when must the trade typically settle?
AImmediately, at the moment the trade executes on Monday, since T+1 eliminated any gap between the trade date and the settlement date
BBy Friday of that same week, since T+1 is interpreted as one full trading week after the trade date
CThe following Monday, exactly one calendar week later, matching the 'T' in T+1 to a full business week rather than a single day
DBy Tuesday, the next business day after the Monday trade date, since T+1 means settlement occurs one business day after the trade executes
Correct answer: .
T+1 means the standard settlement cycle is exactly one business day after the trade date: the trade executes on one business day, and the actual exchange of cash and securities (settlement) occurs on the very next business day. For a trade executed on Monday, that next business day is Tuesday, so settlement typically occurs Tuesday. This replaced the prior T+2 standard, effective May 28, 2024, under the SEC's amendment to Exchange Act Rule 15c6-1(a), a change intended to reduce the credit, market, and liquidity risks created by unsettled trades sitting open for longer periods. The option claiming settlement happens immediately at execution conflates trade date with settlement date — T+1 still describes a one-business-day gap, not a same-instant settlement. The option describing a full trading week, and the option describing a full calendar week, both misread the 'T+1' notation: the '1' refers to one business day, not one week: a trade date and its settlement date are only ever one business day apart under this standard, never five or seven.
Source: SEC, 'New "T+1" Settlement Cycle — What Investors Need To Know' Investor Bulletin (investor.gov); SEC, 'Shortening the Securities Transaction Settlement Cycle' (sec.gov/compliance/risk-alerts)
A US investor wants to buy shares of a company that is headquartered and listed only on a stock exchange outside the United States. Rather than opening a foreign brokerage account, they instead buy a security trading on a US exchange, denominated in US dollars, that a US depositary bank issues to represent shares of that foreign company it holds in custody. What is this US-traded security called?
AA Treasury Inflation-Protected Security (TIPS) — a US government bond whose principal value adjusts with inflation
BAn American Depositary Receipt (ADR) — a certificate issued by a US depositary bank representing one or more shares (or a fraction of a share) of a foreign company held in custody abroad, allowing that company's stock to trade in US dollars on a US exchange
CA real estate investment trust (REIT) — a company that owns, operates, or finances income-producing real estate
DA closed-end fund — a pooled investment vehicle that raises a fixed pool of capital in a one-time initial public offering
Correct answer: .
An American Depositary Receipt (ADR) is a security, issued by a US depositary bank, that represents shares of a non-US company held in custody by that bank, usually through a local custodian in the company's home market. Each ADR represents one or more shares of the foreign stock (or a fraction of a share), and the ADR itself trades on a US exchange in US dollars, letting US investors gain exposure to the foreign company without opening a foreign brokerage account, converting currency themselves, or navigating an unfamiliar market's settlement rules directly. The depositary bank handles custody, registration, dividend collection and conversion into dollars, and related recordkeeping, typically charging a custody fee for these services. The option describing a Treasury Inflation-Protected Security describes an entirely different instrument: a US government bond, not a claim on foreign equity. The option describing a real estate investment trust describes a company that owns or finances property, unrelated to representing foreign shares. The option describing a closed-end fund describes a pooled fund structure with a fixed share count from a single IPO, not a bank-issued certificate representing an individual foreign company's stock.
A US-listed stock's price rises rapidly far outside its Limit Up-Limit Down (LULD) price band, which is set as a percentage above and below the stock's average trading price over the preceding five minutes. The stock enters a 'limit state' and cannot trade back inside the band within 15 seconds. Under the SEC-approved LULD plan adopted after the 2010 Flash Crash, what happens next?
AThe primary listing exchange declares a trading pause of approximately five minutes across all markets trading that stock, giving the order book time to reset before trading resumes
BOnly the exchange where the price spike originated halts trading in the stock, while every other exchange continues trading it normally without interruption
CThe SEC permanently delists the stock from every exchange, since remaining outside the band for more than 15 seconds is treated as a listing violation
DTrading continues without any pause at all, since LULD bands are designed only to halt trades priced below the band, never trades priced above it
Correct answer: .
The Limit Up-Limit Down plan, introduced in 2012 in response to the 2010 Flash Crash, sets a price band around a rolling five-minute average trade price for each individual NMS-listed stock. If the stock's price moves outside that band, it first enters a 'limit state,' during which only orders that would bring the price back inside the band can execute. If the price fails to return inside the band within 15 seconds, the primary listing exchange declares a trading pause, lasting about five minutes, that applies across every market trading that stock simultaneously, not just the exchange where the breach originated, giving the order book time to reset before trading resumes. The option describing a single-exchange-only halt misunderstands the plan's national-market-system design, under which the pause applies market-wide for that security. The option describing automatic permanent delisting invents a consequence that doesn't exist — LULD is a temporary, mechanical trading pause tool, entirely separate from the listing-standards process that can lead to delisting. The option claiming the band only restricts downside moves is also wrong: LULD bands constrain price moves both above (limit up) and below (limit down) the reference price, exactly as its name describes.
Source: SEC, 'Limit Up-Limit Down Pilot Plan and Associated Events' white paper (sec.gov/files/dera-luld-white-paper.pdf); Nasdaq, 'Limit Up-Limit Down: North American Markets' FAQ
Stock Z closed the prior trading day at $80.00 per share. During the next trading session, its price falls to $71.80 — a decline of more than 10% from that prior close — which triggers the SEC's Reg SHO 'alternative uptick rule' (Rule 201). Under this rule, what restriction applies to short sale orders in Stock Z for the remainder of that trading day and the following trading day?
AAll short selling in Stock Z is completely prohibited for the remainder of that day and the entire following trading day, with no exceptions for any order type
BShort sale orders in Stock Z may execute only at a price above the current national best bid; they can no longer be entered or executed at or below it
CStock Z is automatically halted from trading entirely across every exchange until its price recovers back above the 10% decline threshold
DShort sellers in Stock Z must wait for an 'uptick' — a trade printing at a higher price than the immediately preceding trade — before any short sale order can execute, exactly as under the original 1938 uptick rule
Correct answer: .
Reg SHO's Rule 201, adopted by the SEC in 2010, is triggered whenever a covered security's price falls 10% or more from its prior day's closing price. Once triggered, the rule imposes a short sale price test for the remainder of that trading day and the following trading day: short sale orders can only be executed at a price above the current national best bid, not at or below it. The option describing a complete ban on short selling overstates the restriction — short selling remains possible, just constrained to prices above the best bid, not banned outright. The option describing an automatic trading halt confuses this price-based restriction with a volatility trading pause, a separate and distinct mechanism triggered by different, larger price-move thresholds. The option invoking the original 1938 uptick rule misdescribes the modern mechanism: that older rule required an uptick relative to the last trade price before any short sale, while Rule 201's 'alternative' version instead ties the restriction to the prevailing national best bid, not to the sequence of recent trade prints.
Source: SEC, Rule 201 of Regulation SHO — Division of Trading and Markets FAQ (sec.gov/divisions/marketreg/rule201faq.htm); SEC Release No. 34-61595 (Feb. 2010)
A trader wants to buy 1,000 shares of a stock at a specific limit price, but only 400 shares are currently available at that price. The trader enters the order as an 'immediate-or-cancel' (IOC) order. Separately, suppose the trader had instead entered the identical 1,000-share order as a 'fill-or-kill' (FOK) order. How would the outcome differ between these two order types?
AThe IOC order immediately buys the available 400 shares and cancels the unfilled 600-share balance, while the FOK order, unable to fill the entire 1,000 shares immediately, is cancelled in full with zero shares executed
BBoth orders behave identically: each immediately buys the available 400 shares and cancels the remaining 600-share balance, since 'immediate-or-cancel' and 'fill-or-kill' are simply two different industry names for the same order instruction
CThe FOK order immediately buys the available 400 shares and cancels the remainder, while the IOC order, unable to fill the entire 1,000 shares immediately, is cancelled in full with zero shares executed
DBoth orders remain open on the order book indefinitely until all 1,000 shares become available at the limit price, since the 'or cancel' and 'or kill' language refers only to cancellation at the end of the trading day, not immediate execution
Correct answer: .
An immediate-or-cancel order requires whatever quantity is immediately available to execute right away, and automatically cancels whatever portion cannot be filled at that instant — partial fills are allowed. A fill-or-kill order is stricter: it demands the entire order quantity execute immediately in full, and if that full quantity isn't available right away, the whole order is cancelled with no partial execution at all. The option swapping these two behaviors has the mechanics backwards. The option claiming the two instructions are identical overlooks the key distinction FINRA's own order-type definitions draw: the fill-or-kill condition specifically forbids the partial execution that the immediate-or-cancel condition explicitly allows. The option describing both orders staying open until fully filled misunderstands both instructions entirely — 'immediate' and the implicit urgency in 'fill-or-kill' both mean the order is evaluated for execution right away, not held open for later filling like a day or good-til-canceled order.
Source: FINRA, Order Audit Trail System (OATS) Reporting Technical Specifications — order type definitions for Immediate-or-Cancel and Fill-or-Kill orders
After a company releases surprising quarterly earnings at 4:30 p.m. Eastern Time — thirty minutes after the regular trading session closes — an investor decides to place an order to trade the stock immediately in the after-hours (extended-hours) session rather than waiting for the next regular session to open. Compared with trading during the regular 9:30 a.m.-4:00 p.m. Eastern Time session, which statement correctly describes a key risk of trading in this extended-hours session?
AExtended-hours trades are guaranteed to execute at the same price as the next regular session's opening price, since all extended-hours volume is automatically folded into the next day's opening auction
BThe SEC requires market makers to maintain the same minimum liquidity and continuous-quoting obligations during extended hours as during the regular session, so liquidity risk is not a meaningful concern
CTrading volume and the number of participants are typically much lower than during the regular session, which can produce wider bid-ask spreads, greater price volatility, and a risk that the investor's order doesn't execute at all or fills at a worse price
DExtended-hours trading is legally restricted to institutional investors; individual retail investors are not permitted to place orders outside the 9:30 a.m.-4:00 p.m. Eastern Time window
Correct answer: .
The SEC's investor-education guidance on after-hours trading warns that extended-hours sessions typically see far less trading volume and fewer participants than the regular session. That thinner market can produce wider bid-ask spreads, sharper price swings, greater uncertainty that a displayed price will still be available by the time an order reaches the market, and a real possibility that an order doesn't execute at all. The option promising execution at the next session's opening price invents a guarantee that doesn't exist — extended-hours prices and the next day's open can differ substantially. The option describing uniform market-maker obligations gets the risk backwards: liquidity provision is generally thinner, not equally guaranteed, outside regular hours. The option restricting extended-hours trading to institutions only is factually wrong — many retail brokerage firms offer individual investors access to pre-market and after-hours sessions, subject to each firm's own order-type and session-time rules.
Source: SEC Office of Investor Education and Advocacy, Investor Bulletin: 'After-Hours Trading' (investor.gov)
Broker A and Broker B execute a trade with each other on a stock exchange: Broker A sells shares that Broker B buys. Before the trade settles, Broker A unexpectedly becomes insolvent. Under the standard clearing process for US equity trades, what happens to Broker B's side of this trade?
ABroker B bears the loss directly, since in the US equity market there is no intermediary standing between the two original trading counterparties
BThe exchange where the trade executed directly absorbs responsibility for completing Broker B's side of the trade, drawing on a fund it maintains specifically for this purpose
CThe trade is automatically voided and treated as though it never occurred, because any insolvency occurring before settlement cancels all of that firm's pending trades across the industry
DThe National Securities Clearing Corporation (NSCC), which became the legal counterparty to both sides of the trade immediately after execution through a process called novation, ensures Broker B's side of the trade is still completed regardless of Broker A's failure
Correct answer: .
In the US equity market, trades executed on an exchange are sent to the National Securities Clearing Corporation (DTCC's equity clearing subsidiary), which interposes itself as the legal buyer to every seller and the legal seller to every buyer through a process called novation. This makes NSCC, not the original counterparty, the party each side must ultimately settle with, so Broker B's trade still completes even though Broker A has failed. The option describing Broker B bearing the loss directly ignores this central-counterparty structure entirely. The option crediting the exchange itself gets the responsible entity wrong — the exchange facilitates execution, but a separate clearing corporation, not the exchange, stands behind settlement. The option describing automatic industry-wide cancellation of a failed firm's trades invents a consequence that doesn't exist; NSCC's guarantee mechanism exists precisely so that counterparty failure doesn't require unwinding trades on the other side.
Source: DTCC, 'Continuous Net Settlement (CNS)' — National Securities Clearing Corporation equities clearing overview (dtcc.com/products-and-services/clearing-settlement-services/equities-clearing/cns)
A large index fund needs to buy a block of shares in an NYSE-listed stock at precisely that day's official closing price, because the index it tracks is itself priced using that same convention. In the final minutes of the regular trading session, NYSE aggregates market-on-close and limit-on-close orders together with other eligible trading interest in that stock. What mechanism does NYSE use to arrive at the single official closing price?
ANYSE runs a closing auction that matches all eligible buy and sell interest against each other to determine one single clearing price, at which the auction executes, and that price becomes the stock's official close
BThe official closing price is simply whichever price the very last continuous-session trade happened to print at, with no separate order-matching process taking place
CNYSE staff manually sets the official closing price each day based on their own judgment of the stock's fair value, rather than through any automated order-matching process
DThe official closing price is calculated as the volume-weighted average price (VWAP) of every trade executed in the stock that day, rather than being tied to a single end-of-day auction event
Correct answer: .
NYSE determines the official closing price for an auction-eligible security through its closing auction: market-on-close, limit-on-close, and other eligible closing orders are aggregated and matched against each other, and the auction executes at the single price that clears the maximum matched volume, with that print becoming the official close. The option describing the last continuous-session trade as automatically the official close ignores this entire auction mechanism — a closing auction is specifically designed to concentrate end-of-day liquidity into one deliberate pricing event, distinct from the ordinary continuous trades leading up to it. The option describing staff manually setting the price invents a subjective process that doesn't exist; the close is an automated, rules-based order-matching outcome. The option describing a volume-weighted average confuses the official close with VWAP, a separate benchmark computed as an average across the day's trades rather than a single end-of-day matching event.
Source: NYSE Rule 7.35 (Core Open and Closing Auctions); SEC rule filings describing the NYSE closing auction process (e.g., Release No. 34-103798)
A small company's stock does not trade on a listed exchange like the NYSE or Nasdaq; instead, it trades over-the-counter through the OTC Markets Group's tiered marketplace. Among that marketplace's three tiers — OTCQX, OTCQB, and Pink — which tier generally imposes the highest financial and disclosure eligibility standards, including a requirement for a qualified third-party sponsor, and is accordingly regarded as the most transparent of the three?
APink, because it is the OTC Markets Group's original and most established tier, which the group treats as its flagship, most rigorously vetted marketplace
BOTCQX, which requires companies to meet the group's strictest financial and disclosure qualifications, including sponsorship by a qualified third-party advisor or professional, among the three tiers
COTCQB, since it is specifically designed as the group's top tier for larger, more established companies, sitting above both OTCQX and Pink in eligibility standards
DNone of the tiers differ in their requirements; OTC Markets Group applies one identical set of minimum eligibility standards to every company regardless of which tier its stock trades on
Correct answer: .
Within OTC Markets Group's three-tiered marketplace, OTCQX sits at the top, imposing the group's strictest financial and disclosure qualifications, including a requirement that the company engage a qualified third-party sponsor to vouch for its eligibility, which is why it is generally viewed as the most transparent and trustworthy of the three tiers. Pink, often still called the 'Pink Sheets,' is the base tier, with minimal or no disclosure requirements and no sponsor requirement, making the description of it as the group's flagship or most rigorously vetted tier the wrong tier entirely. OTCQB is a middle tier, aimed at smaller and developing companies that must stay current in their reporting and pass an annual verification process, but it sits below OTCQX, not above it, so describing it as the top tier for larger, established companies inverts the actual hierarchy. The claim that all three tiers share identical requirements ignores OTC Markets Group's entire tiered-eligibility structure, which exists specifically to differentiate companies by reporting quality and transparency.
Since November 3, 2025, under Regulation NMS Rule 600(b)(93) as amended by the SEC, the standard 'round lot' size for an NMS-listed stock is no longer a flat 100 shares for every stock — it now depends on the stock's own average share price. Stock X trades around $40 per share, and Stock Y trades around $600 per share. Under this amended rule, what is most likely true about each stock's round lot size?
ABoth stocks still have a round lot of exactly 100 shares each, since the SEC's round lot definition has never actually changed and remains a flat 100 shares for every NMS stock regardless of price
BStock X's round lot is 40 shares and Stock Y's round lot is 100 shares, since round lot size scales up, not down, as a stock's share price increases
CBoth stocks' round lot sizes are now determined solely by which exchange lists them, not by share price, so an investor cannot know either stock's round lot size without first checking its listing venue
DStock X's round lot remains 100 shares, since it trades at or below the rule's $250 threshold, while Stock Y's round lot is smaller, 40 shares, since it falls in the rule's $250.01-to-$1,000 price tier — round lot size now scales down as a stock's share price rises
Correct answer: .
The SEC's amended Rule 600(b)(93) of Regulation NMS, effective November 3, 2025, ties each NMS stock's round lot size to its own average closing share price rather than fixing it at 100 shares for every stock: stocks priced at $250 or below keep the traditional 100-share round lot, stocks priced from $250.01 to $1,000 get a 40-share round lot, and the round lot shrinks further at higher price tiers, down to a single share for the highest-priced stocks. Stock X, around $40, falls in the lowest tier and keeps the familiar 100-share lot; Stock Y, around $600, falls in the next tier up and gets the smaller 40-share lot. The option insisting the definition never changed describes the pre-November-2025 rule, now superseded. The option swapping which stock gets which lot size has the scaling direction backwards — round lots shrink, not grow, as price rises. The option tying lot size to listing venue rather than price misdescribes the rule, which applies uniformly across NMS stocks based on price alone.
Source: SEC, amended Regulation NMS Rule 600(b)(93) (Round Lot definition), effective November 3, 2025 — adopted under the Market Data Infrastructure (MDI) Rules framework
FINRA requires brokerage firms to report, twice each month, the total number of shares of a given stock that have been sold short by their customers and not yet bought back to close out the position. This aggregated figure is commonly called that stock's 'short interest.' What does a relatively large and rising short interest figure most directly indicate about current trading activity in that stock?
AIt measures the total dollar value of the stock currently held in margin accounts, regardless of whether any of those shares have been sold short
BIt measures how many of the company's own outstanding shares were sold by corporate insiders, such as executives and directors, during that reporting period
CA relatively large number of the stock's shares have been borrowed and sold short by investors who have not yet closed out those positions, often evaluated alongside 'days to cover' — the number of average trading days it would take to buy back all outstanding short shares
DIt reflects how many shares of the stock traded during the after-hours session in that reporting period, separate from and in addition to its regular-session trading volume
Correct answer: .
Short interest is the aggregate number of a stock's shares that have been sold short and not yet closed out, and FINRA member firms must report their customers' short positions in each equity security twice a month under FINRA's short interest reporting rule. A large or rising short interest signals that a meaningful number of investors are betting against the stock and still hold open short positions; it is commonly paired with 'days to cover,' which divides short interest by average daily trading volume to estimate how long it would take short sellers to buy back all those shares. The option describing margin account balances confuses short interest with a different metric covering all margin borrowing, short or long. The option describing insider sales confuses short interest with insider-transaction disclosures, an unrelated reporting regime. The option describing after-hours volume confuses short interest, a snapshot of open short positions, with ordinary trading volume in a specific session, which measures shares changing hands rather than positions still open.
Source: FINRA Rule 4560 (Short Interest Reporting) and FINRA Regulatory Notice 21-19; FINRA short interest and 'days to cover' data overview (finra.org)
About Order Types, Exchanges & Market Structure
An order's type controls the tradeoff between certainty of execution and certainty of price. A market order executes immediately at the best price currently available but guarantees nothing about what that price will be; a limit order sets a maximum buy price or minimum sell price and guarantees the price if it fills, but may never fill at all if the market doesn't reach it. A stop order sits dormant until the market trades at a specified stop price, at which point it becomes a market order — commonly used to cap a loss or protect a gain on a position already held; a stop-limit order combines the two, converting to a limit rather than a market order once triggered, trading away certainty of execution for price protection.
US equity trading is also deliberately fragmented across many venues — NYSE, Nasdaq, and numerous smaller exchanges and alternative trading systems — rather than one central market. The SEC's Regulation NMS, adopted in 2005, ties them together through its Order Protection Rule: a trading venue generally cannot execute an order at a price worse than a better, immediately accessible quote displayed on another venue, which is what lets a single marketable order get the best price available anywhere in the National Market System rather than just on the exchange it was routed to.