The bid ask spread a dealer quotes is usually decomposed into which three components?

Order processing costs, inventory holding risk and adverse selection

Commission, exchange fee and clearing fee

Volatility, volume and market capitalization

Rebates, taxes and settlement risk

What is adverse selection in the context of a market maker's quotes?

The risk that the trader hitting your quote knows something you do not, so your fills cluster on the losing side of the next move

The risk of being forced to trade at the closing auction price

The tendency for retail orders to arrive in bursts

The chance that a quote is filled at the wrong exchange

The quote is $20.00 bid and $20.06 ask, and your buy order executes at $20.02. What is the effective spread on that trade?

$0.02, so you paid a third of the quoted spread

$0.01, the distance from the midpoint

What does the order protection rule under Reg NMS require?

A venue may not execute a trade at a price inferior to a protected quotation displayed on another venue

Every order must be routed to the exchange with the largest volume in that stock

Brokers must fill retail orders before institutional orders at the same price

Market makers must quote both sides for at least 100 shares at all times

Under limit up limit down, what actually triggers a five minute trading pause in a stock?

The stock entering a limit state and staying outside the price band for 15 seconds without moving back

A single trade printing more than 10 percent from the last sale

Any halt on the primary listing exchange

The opening auction failing to find a clearing price

Why does queue position matter so much to a passive trader resting at the top of the book?

Orders at a price fill in time priority, so a late queue position fills mainly when the level is about to be cleared through, which is the fill you least want

Exchanges charge more to orders at the back of the queue

Only the first three orders at a price are eligible to trade

Queue position determines which clearing house handles the trade

What is an iceberg order?

An order that displays a small slice of its size while the remainder refreshes into view as each slice is filled

An order that executes only at the closing auction

An order routed simultaneously to every lit venue

An order that cancels automatically if the spread widens

The primary exchange publishes an opening imbalance of 2 million shares to buy. What does that indicate about the auction?

Buy interest exceeds sell interest at the indicative price, so the clearing price tends to move up until enough sellers are drawn in

The stock will be halted at the open

Two million shares have already traded before the bell

The exchange will cancel the excess orders

Why do some trading venues impose a deliberate delay of a few hundred microseconds on incoming orders?

To stop the fastest participants from picking off quotes that have not yet been repriced after a move on another venue

To give retail brokers time to cancel customer orders

To reduce the exchange's own message traffic costs

Because regulators require a minimum resting time on every order

Pro Desk quiz advanced

Market Microstructure Quiz: 10 Questions

Ten hard questions on how prices actually form inside the order book.

10 questions · about 8 minutes · instant explanations · nothing you answer leaves your browser

AI-assisted, reviewed and edited by John James. How we use AI

Sep 23, 2026 8 min read

About this quiz

An advanced test on spread decomposition, adverse selection, effective spreads, Reg NMS, LULD bands, queue position and hidden order types. Each question comes with a short explanation of the right answer and a link to the guide that teaches it, so a wrong answer is a reading list rather than a dead end.

The quiz draws on the Pro Desk section. If you are new to the topic, start with the guides below, then come back and test yourself. Scores are calculated in your browser and are not stored or sent anywhere.

Frequently asked questions

Is this quiz free?

Yes. Like everything else on the site it is free, requires no account and captures no email address, and the scoring runs entirely inside your browser.

What score counts as passing?

This is the most demanding quiz here, so six out of ten is respectable and eight suggests you could hold a conversation on a trading desk about execution quality without nodding along.

Why would a retail investor care about microstructure?

Because it decides what your fills actually cost. The difference between a quoted spread and an effective spread, and the reason a large order moves the price against you, both come straight out of how the order book is organized.

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