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Zorluk: ZorTypes of Orders and Order Execution Strategies

A customer instructs a registered representative to place an order to purchase 1,000 shares of a volatile technology stock currently trading at 42pershare.Thecustomerwantstheorderactivatedonlyifthemarketpricerisesto42 per share. The customer wants the order activated only if the market price rises to 44, confirming upward momentum, but specifies that they are unwilling to pay more than $45 per share under any circumstances. Which order type and parameter structure correctly fulfills these instructions?

  1. A Buy Stop-Limit order with a stop price of 44andalimitpriceof44 and a limit price of 45Cevap
  2. B
    A Buy Stop order with a stop price of $44
  3. C
    A Buy Limit order with a limit price of 45andacontingenttriggerat45 and a contingent trigger at 44
  4. D
    A Buy Stop-Limit order with a stop price of 45andalimitpriceof45 and a limit price of 44

Cevap

A Buy Stop-Limit order with a stop price of 44andalimitpriceof44 and a limit price of 45 correctly fulfills the customer's strategy by requiring price activation at 44whilecappingtheexecutionpriceat44 while capping the execution price at 45.
The correct answer specifies a Buy Stop-Limit order with a stop price of 44andalimitpriceof44 and a limit price of 45. Placed above the current market price of 42,the42, the 44 stop price ensures the order remains dormant until the stock rises to 44.Uponreaching44. Upon reaching 44, the order activates and becomes a limit order to buy at 45orlower,protectingtheinvestorfrompayingmorethan45 or lower, protecting the investor from paying more than 45.

Adım Adım Çözüm

1
Identify the activation mechanism requested by the customer
The customer wants the order triggered only if the stock price rises to 44(abovethecurrentmarketpriceof44 (above the current market price of 42), requiring a Buy Stop at $44.
Buy stop orders are placed above the current market price and remain inactive until a trade or quote occurs at or above the stop price.
2
Identify the execution cap required by the customer
The customer insists on paying no more than 45pershare,requiringaBuyLimitof45 per share, requiring a Buy Limit of 45.
A limit order guarantees that execution will only occur at the specified price or better (lower for a buy order).
3
Combine the activation and limit instructions into a single order structure
Combine Buy Stop 44andBuyLimit44 and Buy Limit 45 into a Buy Stop-Limit order (44Stop,44 Stop, 45 Limit).
Once the stock touches 44,theorderactivatesandconvertsintoaBuyLimitorderat44, the order activates and converts into a Buy Limit order at 45, satisfying both momentum entry and price ceiling constraints.

Anahtar Kavram

Buy Stop-Limit Order Mechanics
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Konular

Types of Orders and Order Execution Strategies