A registered representative is advising an institutional investor who wishes to utilize specialized order types and time-in-force instructions to manage price slippage and execution exposure during volatile trading sessions. The representative reviews the mechanics of Stop orders, Limit orders, and time-in-force qualifiers including Fill-or-Kill (FOK) and Immediate-or-Cancel (IOC). Which of the following statements regarding the execution rules and mechanics of these order instructions are correct?
- A Sell Stop order converts into an active market order to sell once a transaction occurs at or below the stop price, offering no guarantee of an execution price at or above the stop price.Answer
- An Immediate-or-Cancel (IOC) order allows for partial execution of the specified quantity immediately upon order entry, with any unexecuted portion being immediately canceled.Answer
- CA Fill-or-Kill (FOK) order permits the executing broker to fill any portion of the order that is immediately available at the market, while canceling the remaining unfilled balance.
- DA Buy Stop order guarantees that the investor will buy the underlying stock at an execution price no higher than the designated stop price.
Answer
The correct statements are that a Sell Stop order converts into an active market order once activated (with no guaranteed execution price) and that an Immediate-or-Cancel (IOC) order allows partial fills while canceling any remaining unexecuted portion.
The statements describing Sell Stop orders and Immediate-or-Cancel (IOC) orders are correct. A Sell Stop order becomes a market order upon activation at or below the stop price, ensuring execution but exposing the seller to price slippage. An IOC order permits partial execution immediately upon entry, canceling any unfilled balance.
Step-by-Step Solution
Key Concept
Order execution triggers, market conversion mechanics, and time-in-force fill qualifications.
Estimated Time:2m 0s