Trading Range

### In commodities trading, what is the purpose of a trading range? - [ ] To set the minimum price for a commodity - [ ] To determine tax implications for trades - [x] To limit the daily price fluctuation of a commodity - [ ] To ensure a certain amount of trading volume > **Explanation:** A trading range in commodities is established to limit the daily price fluctuation to maintain market stability and prevent excessive volatility. ### What happens if the price of a commodity hits its limit up? - [x] Trading is halted to prevent further price increases for the day - [ ] No action is taken; trades continue as usual - [ ] Prices are recalculated - [ ] Limit down is set automatically > **Explanation:** If a commodity hits its limit up, trading is usually halted to avoid excessive volatility and protect market stability. ### How is the trading range determined for securities? - [ ] By the exchange on a daily basis - [x] By observing the highest and lowest traded prices over a period - [ ] By the initial public offering (IPO) price - [ ] Arbitrarily by market analysts > **Explanation:** The trading range for securities is determined by observing the highest and lowest traded prices over a defined period. ### Can the trading range of a security change within the trading day? - [ ] No, it remains fixed for the day - [x] Yes, it changes as new high and low prices are recorded - [ ] Only if a major market event occurs - [ ] Only if the stock is in a bull market > **Explanation:** The trading range of a security can change throughout the day as new high and low prices are recorded. ### What does a narrow trading range indicate about a security? - [ ] High volatility - [x] Low volatility - [ ] Market manipulation - [ ] Increasing volume > **Explanation:** A narrow trading range generally indicates low volatility, as the price has not moved significantly within the given period. ### Which term refers to the allowable price decrease for a commodity in one trading day? - [ ] Trading limit - [ ] Price floor - [ ] Limit up - [x] Limit down > **Explanation:** The term "limit down" refers to the maximum price decrease allowed for a commodity futures contract within a single trading day. ### In which market element are trading ranges crucial for avoiding excessive volatility? - [x] Commodities - [ ] Cryptocurrencies - [ ] Bonds - [ ] Insurance > **Explanation:** Trading ranges are crucial in commodities markets to prevent excessive volatility and ensure market stability. ### What can investors understand by analyzing a security's trading range? - [ ] Dividend yield - [ ] Company profitability - [x] Price volatility and trends - [ ] Analyst ratings > **Explanation:** Analyzing a security's trading range helps investors understand price volatility and trends, which can influence their trading strategies. ### Why do exchanges adjust trading limits for commodities periodically? - [ ] To adjust credit ratings - [ ] For technological upgrades - [x] Based on market conditions and volatility - [ ] To set new trading hours > **Explanation:** Exchanges adjust trading limits periodically based on market conditions and observed volatility to maintain market stability. ### How does the concept of support and resistance differ from a trading range? - [ ] They refer to the same concept - [x] Support and resistance are specific price points, whereas a trading range encompasses all traded prices within a period - [ ] Trading range determines dividend payout - [ ] Only support levels relate to trading range > **Explanation:** Support and resistance are specific price points where significant buying or selling activity is expected, while a trading range includes all the prices at which a security or commodity has traded within a specific timeframe.