Medium Market Microstructure Practice Questions

280 free medium-difficulty Market Microstructure questions, drawn live from KomFi's calibrated bank. The exam backbone: the difficulty band where most scoring happens.

1. If the market maker observes a net order imbalance of +10,000 shares (more buyers than sellers), what is the n
2. If the probability of an informed trader is α = 0.3, what ask price should a competitive dealer set to ensure
3. If order processing and inventory costs are negligible, what is the competitive bid-ask spread according to th
4. If the analyst submits buy orders for 50,000 shares and the market's price impact coefficient λ is 0.00008, wh
5. In the Kyle (1985) model, if the variance of noise trader order flow (σ_u^2) increases while the variance of t
6. A retail broker routes a buy order to a wholesaler and recei… — This practice is most criticized for which of
7. In the Kyle (1985) model, if the variance of noise trader order flow (σ_u) increases, what happens to the info
8. According to the Glosten-Milgrom model logic, what is the adverse selection component of the spread?
9. If an informed trader's advantage is typically $0.50 per share, what is the adverse selection component of the
10. If a net order imbalance of +1,000 shares is observed, what is the expected price change according to the Kyle
11. If the probability of an information event is α = 0.30, the arrival rate of informed traders is μ = 400 per da
12. Using the Probability of Informed Trading (PIN) model, if the probability of an information event (α) is 0.40
13. Under the Glosten-Milgrom model, if the probability of an informed trader is α = 0.2 and the prior probability
14. What is the Probability of Informed Trading (PIN)?
15. If the dealer wants to break even, what should the ask price be?
16. In the Glosten-Milgrom model, if the probability of an informed trader a is 0, what is the resulting bid-ask s
17. Suppose a dealer sets a 0.20 spread on a stock. If the dealer expects that 30% of orders are from informed tra
18. If the information event probability α = 0.30, the arrival rate of informed traders μ = 400 per day, and the a
19. Which of the following factors, if increased, would directly increase the informed trader's expected profit?
20. An uninformed trader consistently uses limit orders. Which scenario correctly describes the 'adverse selection
21. If a stock has an α = 0.50, μ = 200, and ε_b = ε_s = 400, what is the calculated PIN?
22. In a competitive dealer market, what occurs if a dealer quotes a spread wider than the sum of their costs (pro
23. In the Glosten-Milgrom model, if a dealer sets the bid price as P_bid = E[V | Sell], what is their expected pr
24. In the taxonomy of participants, how is a 'borrower' defined?
25. The PIN (Probability of Informed Trading) model uses which of the following variables to estimate information
26. What is the 'informed trader's dilemma' regarding their trade size in microstructure models like Kyle (1985)?
27. A dealer sets P_ask = 52 and P_bid = 48. After a 'Buy' order… — What is the information content of this trade
28. A market maker quotes 20.00 - 20.02. An informed buyer knows… — If the market maker fills this order, what is
29. An informed trader with a private value estimate V and a market price P only enters the market if |V - P| > c.
30. As of May 2024, what is the standard settlement cycle for U.S. equities, and what is a primary risk this reduc

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