Algorithmic Trading and High-Frequency Trading – Question Bank
Set 1 Questions
1. Algorithmic trading most likely refers to:
A. regular observation of the market followed by manual placement of trades.
B. carefully processing each trade decision and executing orders individually.
C. using a computer to automate a trading strategy.
2. Which of the following is least likely a goal of execution algorithms? A. Minimize
market impact.
B. Automate “how to trade”.
C. Make trading decisions based on data patterns.
3. Which of the following is most likely an objective of high-frequency algorithmic
trading? A. Minimize market impact.
B. Ensure a benchmarked price. C. Automate “when to trade”.
4. Which of the following is least likely a goal of high-frequency algorithmic trading? A.
Slice large orders into smaller trades.
B. Maximize profit.
C. Automate “what to trade”.
5. Low latency is most likely critical for: A. execution algorithms.
B. high-frequency trading algorithms.
C. neither execution algorithms nor high-frequency trading algorithms.
6. Which of the following is least likely an execution algorithm? A. Market participation.
B. Implementation shortfall.
C. Pairs trading.
7. Which of the following trading strategies is best executed using high-frequency
trading algorithms?
A. Spread trading
B. Implementation shortfall.
C. Volume-weighted average price.
8. Which of the following best describes spread trading?
A. Break down orders based on historical trading volumes of a security.
B. Dynamic adjustment of trades as per market conditions.
C. Take long/short positions in the futures market based on profitability motives.
9. Which of the following least likely employs high-frequency algorithmic techniques?
A. Liquidity aggregation and smart order routing.
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, Algorithmic Trading and High-Frequency Trading – Question Bank
B. Calculation of the volume-weighted average price of a security.
C. Calculation of the real-time price of a security.
10. Market fragmentation is best described as a situation where: A. trading is split across
multiple venues.
B. different types of securities trade on the same platform.
C. liquidity aggregation on the largest exchange.
11. Which of the following techniques has least likely evolved in response to the trend that
trading in certain securities is split across multiple venues? A. Liquidity aggregation.
B. Smart order routing.
C. Genetic tuning.
12. Which of the following is least likely an approach to mitigate trading risk? A. Real-
time pre-trade firewall.
B. Back testing and market simulation.
C. Detecting anomalous market movements.
13. Which of the following is least likely a goal of real-time monitoring/market
surveillance? A. Detect potential market abuse while it is happening.
B. Detect anomalous market movements.
C. Detect irregularities in trading costs.
14. Which of the following is least likely a concern associated with algorithmic trading?
A. Fear of an unfair advantage.
B. Accentuation of market movements.
C. Higher cost of execution.
Set 1 Solutions
1. C is correct. Following an algorithm means taking a series of steps to attain a goal.
Algorithmic trading means “using a computer to automate a trading strategy.” Algorithms
can take and execute several trading decisions, hence do not trade orders individually.
Section 2. LO.a.
2. C is correct. Execution algorithmic trading breaks down large orders and executes them over
a certain time, thereby minimizing market impact and automating the placement of orders.
Making trading decisions based on data patterns is achieved with HFT algorithms. Section
2.1. LO.b.
3. C is correct. HFT algorithms automate “when to trade” as opposed to execution algorithms
which automate “how to trade.” A & B are goals of execution algorithms. Section 2.2. LO.b.
Copyright © IFT. All rights reserved. Page 2
Set 1 Questions
1. Algorithmic trading most likely refers to:
A. regular observation of the market followed by manual placement of trades.
B. carefully processing each trade decision and executing orders individually.
C. using a computer to automate a trading strategy.
2. Which of the following is least likely a goal of execution algorithms? A. Minimize
market impact.
B. Automate “how to trade”.
C. Make trading decisions based on data patterns.
3. Which of the following is most likely an objective of high-frequency algorithmic
trading? A. Minimize market impact.
B. Ensure a benchmarked price. C. Automate “when to trade”.
4. Which of the following is least likely a goal of high-frequency algorithmic trading? A.
Slice large orders into smaller trades.
B. Maximize profit.
C. Automate “what to trade”.
5. Low latency is most likely critical for: A. execution algorithms.
B. high-frequency trading algorithms.
C. neither execution algorithms nor high-frequency trading algorithms.
6. Which of the following is least likely an execution algorithm? A. Market participation.
B. Implementation shortfall.
C. Pairs trading.
7. Which of the following trading strategies is best executed using high-frequency
trading algorithms?
A. Spread trading
B. Implementation shortfall.
C. Volume-weighted average price.
8. Which of the following best describes spread trading?
A. Break down orders based on historical trading volumes of a security.
B. Dynamic adjustment of trades as per market conditions.
C. Take long/short positions in the futures market based on profitability motives.
9. Which of the following least likely employs high-frequency algorithmic techniques?
A. Liquidity aggregation and smart order routing.
Copyright © IFT. All rights reserved. Page 1
, Algorithmic Trading and High-Frequency Trading – Question Bank
B. Calculation of the volume-weighted average price of a security.
C. Calculation of the real-time price of a security.
10. Market fragmentation is best described as a situation where: A. trading is split across
multiple venues.
B. different types of securities trade on the same platform.
C. liquidity aggregation on the largest exchange.
11. Which of the following techniques has least likely evolved in response to the trend that
trading in certain securities is split across multiple venues? A. Liquidity aggregation.
B. Smart order routing.
C. Genetic tuning.
12. Which of the following is least likely an approach to mitigate trading risk? A. Real-
time pre-trade firewall.
B. Back testing and market simulation.
C. Detecting anomalous market movements.
13. Which of the following is least likely a goal of real-time monitoring/market
surveillance? A. Detect potential market abuse while it is happening.
B. Detect anomalous market movements.
C. Detect irregularities in trading costs.
14. Which of the following is least likely a concern associated with algorithmic trading?
A. Fear of an unfair advantage.
B. Accentuation of market movements.
C. Higher cost of execution.
Set 1 Solutions
1. C is correct. Following an algorithm means taking a series of steps to attain a goal.
Algorithmic trading means “using a computer to automate a trading strategy.” Algorithms
can take and execute several trading decisions, hence do not trade orders individually.
Section 2. LO.a.
2. C is correct. Execution algorithmic trading breaks down large orders and executes them over
a certain time, thereby minimizing market impact and automating the placement of orders.
Making trading decisions based on data patterns is achieved with HFT algorithms. Section
2.1. LO.b.
3. C is correct. HFT algorithms automate “when to trade” as opposed to execution algorithms
which automate “how to trade.” A & B are goals of execution algorithms. Section 2.2. LO.b.
Copyright © IFT. All rights reserved. Page 2
