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Question 1 of 10

What's the best way to ensure a position will be closed at exactly the level where you want to exit, if you make a loss?

A Set a limit order
B Set a stop order
C Set a guaranteed stop
D Watch the market constantly, day and night

Explanation

A stop is a resting order that will close your position if the market hits the level you specify. Using a guaranteed stop means you won't experience any slippage beyond that price.

Question 2 of 10

What are the benefits of setting a stop? (Select all that apply)

Please select all answers that apply

Your position will close when you reach your profit target
You don't need to be logged in to your platform to close a position
You don't need to make a difficult decision under pressure
You're more likely to make a profit on the trade
Your position will close if losses reach a level you specify

Explanation

A stop automates the process of closing a trade if the market moves against you. So you can choose your exit point, then leave it to your platform to execute the decision you've made.

Question 3 of 10

When is the best time to set a stop?

A While opening the position
B As soon as you go into profit
C As soon as you start to make a loss
D When your loss hits an unacceptable level

Explanation

Ideally you should set your stop at the outset, so your position is never left unprotected. You can move stops later if necessary.

Question 4 of 10

What is a risk vs reward ratio?

A The number of losing trades you make versus the winners
B A measure of your attitude towards risk
C A comparison between the potential loss and profit on a trade
D The mathematical probability of success on a trade

Explanation

A risk vs reward ratio compares the amount you risk losing on a trade with the amount of profit you could possibly make.

Question 5 of 10

Which of these techniques would you expect a professional trader to use to maximise their chances of profitability? (Select all that apply)

Please select all answers that apply

Try to out-predict other traders and beat the market
Focus more on levels of risk than potential returns
Look for potential profit to exceed possible loss on each trade
Adopt a negative risk vs reward ratio

Explanation

It's impossible for humans to predict the future, so rather than focusing on winning more trades, professional traders tend to concentrate on reducing the impact of loss. Adopting a positive risk vs reward ratio means that the capital a trader risks is worthwhile in terms of the potential profit.

Question 6 of 10

If you trade with a 1:2 risk vs reward ratio, which of the following would enable you to be profitable? (Select all that apply)

Please select all answers that apply

Winning 20% of your trades
Winning 40% of your trades
Losing 50% of your trades
Losing 60% of your trades
Losing 70% of your trades

Explanation

It's possible to be profitable even if you're wrong 60% of the time, when you use a 1:2 risk vs reward ratio. Remembering our example of a coin game, if you flipped ten times, you'd lose £6 from your six failures, but make £8 from your four successes.

Question 7 of 10

You set a stop 100 pips away from your entry level on a trade, and a limit 400 pips away. What risk vs reward ratio are you using?

A 1:1
B 1:2
C 1:4
D 4:1

Explanation

Your risk is 100 pips and your potential profit is 400 pips, giving you a 1:4 risk vs reward ratio.

Question 8 of 10

Trading with a 1:2 risk vs reward ratio means you can never wipe out your trading capital:

A True
B False

Explanation

You always need to consider the amount of trading capital you could lose on any one trade, even if you're using the recommended 1:2 risk vs reward ratio. A single bad trade can be enough to erase your account balance if you take on too much risk.

Question 9 of 10

What percentage of your trading capital would be sensible to risk on any one position?

A 1-5%
B 10%
C 50%
D 100%

Explanation

For new traders, it's wise to risk no more than 1% of your trading capital per position. This will leave 99% of your account equity intact if the trade doesn't work out. More experienced traders could consider risking up to 5%, but remember that markets are by nature unpredictable and any trade can go wrong.

Question 10 of 10

Which one of our five rules is most important to follow on each and every trade?

A 1. Plan where to exit your trade before entry
B 2. Set a stop at the outset
C 3. Use a positive risk vs reward ratio
D 4. Risk no more than 5% of your equity per trade
E 5. Obey all of the rules - always

Explanation

Following all of these rules, all of the time, will enable you to focus on the important part of trading - watching the markets and finding the right opportunities to make rewarding and sustainable profits.

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