Whether you are aiming to pass the Series 7 in the US, the CSC in Canada, or the CISI exams in the UK, or simply want to stop losing money on day trading apps, knowledge is your most valuable asset.
The stock market isn't just about "buy low, sell high." It is a complex ecosystem of regulations, technical indicators, and economic shifts. From the floor of the NYSE to the digital tickers of the London Stock Exchange, the language of money changes slightly, but the principles of risk and reward remain the same.
Below, I have compiled 30 high-impact questions and answers. These aren't your standard "What is a stock?" questions. These are designed to test your understanding of market mechanics, taxes, and global trading strategies.
Pro Tip for Readers: Treat this article as a mock exam. Cover the answers, try to solve them, and see where you stand.
Part 1: The Fundamentals (Global Context)
These concepts apply whether you are trading in New York, Toronto, or London.
Q1. What is the primary difference between Common Stock and Preferred Stock regarding voting rights?
Answer: Generally, Common Stock holders have voting rights (usually one vote per share) to elect the board of directors. Preferred Stock holders usually do not have voting rights but have a higher claim on assets and earnings (dividends) than common stockholders.
Q2. In technical analysis, what does a "Golden Cross" indicate?
Answer: A Golden Cross occurs when a short-term moving average (e.g., 50-day) crosses above a long-term moving average (e.g., 200-day). This is interpreted by traders as a strong bullish breakout signal.
Q3. What is "Short Selling"?
Answer: Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. Short sellers believe the price of the stock will decline, allowing them to buy it back at a lower price to make a profit.
Q4. Define "Market Capitalization" (Market Cap).
Answer: It is the total market value of a company's outstanding shares. It is calculated as:
Market Cap = Share Price × Total Number of Outstanding Shares
Market Cap = Share Price × Total Number of Outstanding Shares
Q5. What is the role of a Clearing House in stock trading?
Answer: A Clearing House acts as an intermediary between a buyer and a seller to ensure the transaction is finalized. It reduces the risk of one party failing to honor their trade settlement.
Part 2: The USA Market (Wall Street Focus)
Specifics regarding SEC regulations, IRS rules, and American indices.
Q6. What does the acronym "SEC" stand for, and what is its purpose?
Answer: The Securities and Exchange Commission. It is the US government oversight agency responsible for regulating the securities markets and protecting investors.
Q7. Which index is widely regarded as the best single gauge of large-cap U.S. equities?
Answer: The S&P 500 (Standard & Poor's 500).
Q8. What is a "401(k)" plan?
Answer: A 401(k) is an employer-sponsored defined-contribution pension account defined in the US Internal Revenue Code. It allows employees to save for retirement on a tax-deferred basis.
Q9. In the US market, what is "Pattern Day Trading" (PDT) rule?
Answer: The PDT rule states that if a trader with less than $25,000 in their margin account executes four or more "day trades" within five business days, their account will be frozen or restricted.
Q10. What is the "VIX"?
Answer: The CBOE Volatility Index, often referred to as the "Fear Gauge." It represents the market's expectation of 30-day forward-looking volatility based on S&P 500 options.
Part 3: The Canadian Market (Bay Street Focus)
Focusing on the TSX, resources, and Canadian banking.
Q11. What is the primary stock exchange in Canada?
Answer: The Toronto Stock Exchange (TSX).
Q12. What is a "TFSA" and how does it benefit Canadian investors?
Answer: Tax-Free Savings Account. It allows Canadians (18+) to set money aside tax-free throughout their lifetime. Capital gains and dividends earned inside a TFSA are not taxed, even upon withdrawal.
Q13. Canada is heavily known for which two sectors in its stock market?
Answer: Energy (Oil & Gas) and Financials (The "Big Five" Banks).
Q14. What is the Canadian equivalent of the US SEC?
Answer: Regulation in Canada is provincial, but the umbrella organization is the CSA (Canadian Securities Administrators), with the OSC (Ontario Securities Commission) being the most prominent.
Q15. What is an "RRSP"?
Answer: Registered Retirement Savings Plan. Contributions are tax-deductible (lowering your income tax today), but withdrawals are taxed as income in the future.
Part 4: The UK Market (The City Focus)
Dealing with the LSE, Gilts, and Stamp Duty.
Q16. What is the "FTSE 100" (pronounced Footsie)?
Answer: An index composed of the 100 largest companies (by market capitalization) listed on the London Stock Exchange (LSE).
Q17. What is "Stamp Duty Reserve Tax" (SDRT) when buying UK shares?
Answer: It is a tax usually charged at 0.5% on the paperless transaction when you buy shares of a UK company.
Q18. What are UK government bonds commonly called?
Answer: Gilts (Gilt-edged securities).
Q19. What is an "ISA" in the context of UK investing?
Answer: Individual Savings Account. Similar to the Canadian TFSA, it is a tax-efficient wrapper that protects your savings and investments from Income Tax and Capital Gains Tax.
Q20. What time does the London Stock Exchange open (local time)?
Answer: The LSE opens at 08:00 and closes at 16:30 (London time).
Part 5: Advanced Trading & Derivatives
For the serious traders looking at risk management.
Q21. What is the difference between a "Call Option" and a "Put Option"?
Answer:
- Call Option: Gives the holder the right to buy a stock at a set price.
- Put Option: Gives the holder the right to sell a stock at a set price.
Q22. Explain the concept of "Margin Call."
Answer: A Margin Call happens when the value of a trader's margin account falls below the broker's required amount. The broker demands the trader deposit more cash or securities immediately to cover the potential losses.
Q23. What is "Beta" in stock analysis?
Answer: Beta measures a stock's volatility in relation to the overall market.
- Beta = 1: Moves with the market.
- Beta > 1: More volatile than the market.
- Beta < 1: Less volatile than the market.
Q24. What is an ETF (Exchange Traded Fund)?
Answer: A type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same way a regular stock can.
Q25. What is the difference between "Fundamental Analysis" and "Technical Analysis"?
Answer:
- Fundamental: Evaluates a company's intrinsic value by looking at financial statements, management, and economic factors (P/E ratio, earnings).
- Technical: Evaluates investments by analyzing statistical trends gathered from trading activity, such as price movement and volume (Charts).
Part 6: Situational & Behavioral Questions
Q26. If interest rates rise, what typically happens to bond prices?
Answer: Bond prices fall. There is an inverse relationship between interest rates and bond prices.
Q27. What is a "Blue Chip" stock?
Answer: A stock of a huge, well-established, and financially sound company that has operated for many years (e.g., Coca-Cola, Royal Bank of Canada, Unilever).
Q28. What is the "Ex-Dividend Date"?
Answer: The date on which the stock starts trading without the value of its next dividend payment. If you buy the stock on or after this date, you will not receive the upcoming dividend.
Q29. What does "Diversification" strictly mean in portfolio management?
Answer: It is a risk management strategy that mixes a wide variety of investments within a portfolio. The rationale is that a portfolio constructed of different kinds of assets will yield higher long-term returns and lower the risk of any individual holding.
Q30. What is a "Circuit Breaker" in the stock market?
Answer: An automatic, temporary halt in trading implemented by an exchange to curb panic-selling during extreme market volatility.
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[Click Here to Download the Share Market Q&A PDF - Free]Conclusion
Mastering the stock market is a journey, not a sprint. Whether you are looking at the FTSE 100 in London, the S&P 500 in New York, or the TSX in Toronto, the vocabulary of success remains rooted in understanding these core concepts.
If you found this guide helpful, share it with your study group or fellow traders. Good luck with your exams and your trades!