Mixed Deck — All CPT Topics Flashcards
100 cards from real CPT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 20 Mixed Deck — All CPT Topics flashcards as text
What is the significance of Bitcoin's 'difficulty adjustment'?
Answer: It recalibrates mining difficulty every ~2 weeks to maintain an average 10-minute block time
Bitcoin's difficulty adjusts approximately every 2,016 blocks (~2 weeks) to ensure blocks are found roughly every 10 minutes regardless of total network hash rate changes.
Under the wash-sale rule, if you sell a stock at a loss and repurchase the same stock within how many days before or after the sale, the loss is disallowed?
Answer: 30 days
The wash-sale rule disallows a loss if the same or substantially identical security is purchased within 30 days before or after the sale.
A trading algorithm's 'Sharpe ratio' is calculated using:
Answer: Excess return over the risk-free rate divided by the standard deviation of returns
The Sharpe ratio measures risk-adjusted return by dividing the portfolio's excess return (above the risk-free rate) by its return volatility (standard deviation).
What challenge is most commonly encountered in algorithmic & automated trading within Certified Pro Trader practice?
Answer: Resistance to change and difficulty maintaining consistency across stakeholders
The most common challenge in algorithmic & automated trading is overcoming resistance to change while maintaining consistent implementation across diverse stakeholders.
Under Regulation NMS Rule 611 (the 'Order Protection Rule'), broker-dealers are prohibited from:
Answer: Trading through a protected quote at a better price on another exchange
Rule 611 prohibits trade-throughs, meaning executing a trade at a worse price when a better protected quote is available on another exchange.
What is a 'dark pool,' and what advantage does it offer institutional traders?
Answer: A private, off-exchange trading venue allowing large block trades to execute without moving the public market price
Dark pools let institutions execute large orders without revealing size or intent to the public market, minimizing price impact and adverse selection.
The Black-Scholes model assumes which of the following about stock price movements?
Answer: Stock prices follow a lognormal distribution with constant volatility
The Black-Scholes model assumes stock prices follow geometric Brownian motion with constant volatility, implying a lognormal distribution of returns.
A prop trader's firm requires them to take a mandatory two-day break after hitting the maximum drawdown limit. What is the PRIMARY psychological rationale for this rule?
Answer: It forces the trader to exit their emotional state and return to baseline before risking more capital
Mandatory breaks interrupt the emotional spiral that follows a significant drawdown, resetting the trader's psychological state before they can inflict further damage.
When implementing forex & currency markets practices, what should CPT professionals prioritize?
Answer: Alignment with professional standards, stakeholder needs, and organizational goals
Effective implementation of forex & currency markets requires balancing professional standards, stakeholder needs, and organizational objectives for optimal results.
A 'cup and handle' pattern breakout target is typically calculated by:
Answer: Adding the cup depth to the breakout point
The measured move for a cup and handle is the depth of the cup added to the breakout price level.
An options trader sells a cash-secured put on a stock they want to own at a lower price. If the put expires worthless, the trader's effective outcome is:
Answer: They keep the premium as profit without acquiring the shares
When a short put expires worthless, the seller keeps the entire premium collected as profit without any stock assignment.
Which metric best measures an algorithm's ability to avoid adverse market impact when executing large orders?
Answer: Implementation shortfall
Implementation shortfall measures the difference between the decision price and the final execution price, capturing the full cost of trading including market impact.
Which of the following best describes the 'three-day rule' used by many technical traders after a significant gap down?
Answer: Wait three days before entering a long position to confirm the gap does not continue lower
The three-day rule suggests waiting three sessions after a large gap down before buying, allowing initial panic selling to exhaust itself.
Which diversification strategy involves spreading investments across different points in time to reduce timing risk?
Answer: Dollar-cost averaging
Dollar-cost averaging reduces timing risk by investing fixed amounts at regular intervals, buying more shares when prices are low and fewer when prices are high.
What is the function of a 'mempool' in Bitcoin and similar cryptocurrencies?
Answer: A temporary holding area for unconfirmed transactions waiting to be included in a block
The mempool (memory pool) is where broadcast transactions wait until miners select them for inclusion in the next block, typically prioritizing higher-fee transactions.
What is a 'mortgage-backed security' (MBS), and what is prepayment risk?
Answer: A security representing a pool of mortgage loans where investors receive principal and interest; prepayment risk is the danger that borrowers repay early when rates fall, forcing reinvestment at lower yields
MBS pool residential mortgages and pass through payments to investors; prepayment risk mirrors callable bond risk — homeowners refinance when rates fall, returning principal at the worst time.
In the context of market structure, what is a 'liquidity vacuum' or 'air pocket'?
Answer: A price area with very few resting orders, causing price to move rapidly and with little resistance through that zone
A liquidity vacuum is a price zone where order book depth is thin, allowing prices to travel quickly through those levels when triggered.
The 'January Barometer' is a seasonal trading concept suggesting that:
Answer: January's stock market performance predicts the direction for the rest of the year
The January Barometer holds that as January goes, so goes the year — a positive January historically correlates with positive full-year returns.
Under the Pattern Day Trader (PDT) rule, a trader in a margin account must maintain a minimum equity of:
Answer: $25,000
FINRA's PDT rule requires traders who execute four or more day trades in five business days in a margin account to maintain at least $25,000 in account equity.
Which candlestick pattern consists of three consecutive declining candles, each closing lower, and signals continued bearish momentum?
Answer: Three black crows
Three black crows is a bearish pattern of three consecutive long-bodied candles each closing at or near the session low.