1. What is the primary purpose of the 1% rule in position sizing?
To risk no more than 1% of account equity on any single trade To guarantee a 1% profit on every trade To limit the number of trades to 1% of available capital To ensure brokers charge no more than 1% commission
2. A risk-to-reward ratio of 1:3 on a trade means what?
You risk $3 to potentially make $1 You risk $1 to potentially make $3 Your win rate must be 3% You must take 3 trades for every 1 winner
3. According to the module, what is a leading reason most beginner traders lose money?
They diversify too much across assets They risk too little per trade They lack a defined risk plan and oversize positions relative to their account They only trade during major news events
4. What is the main goal of drawdown management?
To eliminate all losing trades To protect remaining capital during losing streaks so the account can recover To increase leverage after a loss to recover faster To predict exactly when the next loss will occur
5. Portfolio management for active traders is primarily concerned with:
Picking the single best trade idea available Managing multiple open positions and exposures together as a whole, not in isolation Trading as many instruments as possible at once Avoiding the use of stop-losses
6. Diversification reduces risk mainly by:
Increasing the total number of trades taken Spreading capital across assets that don't all move together Concentrating capital in the single best-performing asset Avoiding stop-loss orders entirely
7. The general risk-versus-reward tradeoff in investing states that:
Higher potential returns typically come with higher risk Risk and potential return are unrelated Lower risk always produces higher returns Reward is only relevant for short-term trades
8. What is a maximum daily loss limit?
A rule requiring a minimum number of trades per day A predetermined amount that, once lost in a day, means you stop trading until the next session The maximum size of a single position A broker-imposed limit on withdrawals
9. When a trader hits their maximum daily loss limit, the recommended action is to:
Increase position size to recover the loss faster Switch to a different, unfamiliar strategy immediately Stop trading for the rest of the day and review the session later with a clear head Double the daily limit for the next session
10. Why do professional risk desks use weekly and monthly drawdown limits in addition to daily limits?
They are legally required to do so To catch a slow, steady bleed of capital that stays under the daily limit every single day Because daily limits are unnecessary once weekly limits exist To increase how much can be risked on any one trade
11. What is correlation risk?
The risk that a broker's spreads are too wide The risk that several seemingly separate positions actually share the same underlying exposure and move together The risk of holding too few open positions The risk that a stop-loss order is filled at the exact requested price
12. A trader goes long EURUSD, GBPUSD, and AUDUSD at the same time. Why is this not really three independent 1%-risk trades?
Because all three pairs are actually the same instrument Because each pair shares the US dollar, making this closer to one large USD-short bet than three separate trades Because forex brokers do not allow more than one open position Because these pairs never move at the same time
13. Why do spreads widen and slippage increase around major scheduled news releases?
Brokers intentionally shut down trading during news Liquidity providers pull back and the market rapidly reprices based on new information Trading volume drops to zero during news events Currency pairs are delisted temporarily during releases
14. What is weekend gap risk?
The risk that spreads are wider on Friday afternoons The risk that price opens Monday far from Friday's close due to events during market closure, potentially skipping past a stop-loss The risk that brokers close accounts over weekends The risk that leverage is reduced on weekends
15. What defines a 'black swan' event?
Any single losing trade A rare, extreme-impact event that is very difficult to predict in advance but seems explainable in hindsight A scheduled economic data release A predictable seasonal pattern in price
16. Why can't standard risk models fully protect against black swan events?
Because standard risk models are illegal to use Because they're built on historical volatility and correlation data that can break down during a genuine crisis, as correlations converge and liquidity vanishes Because black swan events only affect cryptocurrency markets Because they require unlimited leverage to occur
17. What is the main danger of using 'scaling in' on a trade?
It always improves your average entry price with no downside It can turn into averaging down on a losing position, increasing losses if price keeps moving against you It is only available on demo accounts It eliminates the need for a stop-loss
18. What is a key benefit of 'scaling out' of a winning position?
It guarantees the maximum possible profit on every trade It locks in some profit while allowing the remaining portion to potentially capture a larger move It removes the position from your trading history It automatically increases your leverage