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Question

Difficulty: MediumTypes of Orders and Order Execution Strategies

Match each order type or execution qualifier on the left with its correct execution rule or trigger condition on the right.

  • Buy Limit OrderEntered below the current market price; guarantees execution at the specified price or better, but does not guarantee execution if the market does not reach the target price.
  • Sell Stop OrderPlaced below the current market price; becomes an active market order to sell once the stock trades at or below the specified stop price.
  • Fill-or-Kill (FOK) OrderMust be executed immediately in its entirety at the specified price or better; if the full quantity cannot be filled immediately, the entire order is canceled.
  • Immediate-or-Cancel (IOC) OrderMust be executed immediately for as much of the order quantity as available at the specified price or better; any unfilled portion of the order is immediately canceled.

Answer

Buy Limit Order matches with the rule specifying entry below market price with a price-or-better guarantee; Sell Stop Order matches with the condition of being placed below market price and converting to a market order upon trigger; Fill-or-Kill (FOK) Order matches with immediate full execution or complete cancellation; Immediate-or-Cancel (IOC) Order matches with immediate partial execution allowed and unexecuted balance canceled.
Each order type aligns with its specific trigger or execution rule: Buy Limit orders purchase at or below the specified limit price; Sell Stop orders trigger into market sell orders when price falls to the stop level; Fill-or-Kill (FOK) requires immediate execution in full or complete cancellation; Immediate-or-Cancel (IOC) accepts immediate partial execution while canceling the rest.

Step-by-Step Solution

1
Analyze limit order execution constraints.
Identify that a Buy Limit order guarantees price control (buying at the limit price or lower) and is set below current market price.
Limit orders cap the maximum purchase price or minimum sale price.
2
Analyze stop order trigger mechanisms.
Identify that a Sell Stop order is placed below the market and becomes a market sell order once triggered at or below the stop price.
Stop orders act as memory triggers that activate into market orders upon reaching the stop price.
3
Distinguish between FOK and IOC order qualifiers.
Differentiate FOK (requires 100% immediate fill or complete cancellation) from IOC (allows partial immediate fill with the remainder canceled).
Both require immediate action, but only IOC permits partial fills.

Key Concept

Order Types and Execution Qualifiers Mechanics
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Topics

Types of Orders and Order Execution Strategies