How much do you know about the stock market? This simple quiz will test your knowledge on stocks and investing.
When you say stock market, do thoughts of rooms filled with people who are madly barking, screaming figures and instructions at one another appear? There is a lot more to the stock market.
Check out the questions and figure out what do you know about the stock market.
Q1. If you buy a company's stock then
a. You own a part of the company b. You have lent money to the company c. You are liable for the company's debts d. The company will return your original investment to you with interest
Answer: You own a part of the company
You own a part of the company which represents a claim on the company’s assets and earnings. It gives you the right to receive the dividends that the company announces on its shares. Anyone can hold shares in a company, including people who also work in the company and receive a salary.
Q2. Sensex is a barometer for stock market behavior. It tells you if most of the stocks have gone up or down.
a. False b. True c. No Idea
Sensex- Sensitive Index is the stock market index indicator. The calculation of Sensex is done by free-float market capitalization method where the index reflects the free-float market value of the 30 constituent stocks relative to a base period.
Q3. When you purchase a stock of Rs.10 and sell it after a month at Rs.20
a. You are buying low and selling high b. You are buying high and selling low c. You are gaining dividends
Answer: You are buying low and selling high
The practice of buying a security when its price is low and selling it when its price is high. The basic concept is buying when the investment instruments are on sale which means buying when everyone else is selling and prices are down. You can sell the stocks when it reaches rises dramatically high.
Q4. The term bullish indicates
a. Positive price action b. Negative price action c. Neutral price action
Answer: positive price action
Price action indicates the up and down movement of security’s price when it is plotted over time. Bullish is the mindset adopted by trader thinking securities will move up in price. The opposite of this is bearishness, which is the sentiment that securities and markets are moving down in price.
Q5. When is the market called a Bull Market?
a. When a major market hits a new record b. When a broad market index records 20% gain from its previous low c. When analyst announce so
Answer: When a broad market index records 20% gain from its previous low
The bull market generally takes place when a large portion of security prices are rising. They tend to happen in line with the strong gross domestic product (GDP). Investors who want to benefit from a bull market should buy early in order to take advantage of rising prices and sell them when they’ve reached their peak.
Q6. If a company files for bankruptcy, which of the securities is at risk of becoming worthless?
a. The company’s preferred stock b. The company's common stock c. The company's bonds
Answer: The company's common stock
When a company files for bankruptcy, under Chapter 11 bankruptcy, the company is allowed to continue functioning, but creditors and shareholders must approve the reorganization plan. The stock of the company in Chapter 11 becomes worthless, however, the company may issue new shares after erupting from bankruptcy.
Q7. What type of trading is suitable for you when you have a day job and can only dedicate a few hours analyzing the market?
a. Scalping b. Day trading c. Swing trading
Answer: Swing trading
Swing trading maximizes the potential of short-term profit by capturing the bulk of market swings. It is a short-term trading method that is used when trading stocks and options. The trading positions last for two to six days but may last as long as two weeks.
Q8. Which of the following trading requires more commitment towards time on charts?
a. Swing trading
b. Day trading
Scalping requires commitment towards time on charts. It involves trading currencies based on a set of real-time analysis. The purpose of scalping is to make a profit by buying or selling currencies and holding the position for a very short time and closing it for a small profit.
a. A stock that has the potential to gain value in future b. A stock that has profits c. A stock that might be experiencing lost value in the future
Answer: A stock that might be experiencing lost value in the future. Short-selling means the sale of a stock, the trader does not own. You borrow a stock, sell the stock, and then buy the stock back to return it to the broker. It is used to capitalize on a potential decline of security.
Q10. The chart pattern that signals that the trend on the existing pattern will be the same as the trend on entering pattern is called
a. Bilateral chart patterns b. Continuation chart patterns c. Bearish chart patterns
Answer: Bilateral chart patterns
The bilateral chart patterns are the triangular chart patterns which mean that after a break-out the trend could either continue or reverse. The more price approaches the apex i.e, the trend lines converge, the bigger the chance of a break-out.
Did you find it interesting? Well, knowledge about the stock investment can ultimately benefit you in taking the right decision. The higher your stock market IQ, the greater your chances of creating wealth through investment. Hope this quiz has brought some light on your knowledge of the terms used in context with the stock market.
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