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Zorluk: OrtaTypes of Orders and Order Execution Strategies

An investor holding 500 shares of ABC stock, currently trading at 62pershare,placesaSellStop58,Limit57ordertoguardagainstpotentiallosswhilesettingaminimumacceptablesaleprice.Priortothenextmarketopen,negativenewsisreleased,causingABCstocktogapdownandopenat62 per share, places a Sell Stop 58, Limit 57 order to guard against potential loss while setting a minimum acceptable sale price. Prior to the next market open, negative news is released, causing ABC stock to gap down and open at 55 per share. Which of the following statements accurately describes the status and execution handling of the investor's order at the market opening?

  1. The order is triggered and activated as a limit order to sell at 57orbetter,butitremainsunexecutedbecausethemarketpriceof57 or better, but it remains unexecuted because the market price of 55 is below the limit price.Cevap
  2. B
    The order is activated as a market order and immediately executes at the opening price of $55 per share.
  3. C
    The order is automatically canceled because the opening market price gapped below both the stop price and the limit price.
  4. D
    The broker-dealer acts as a principal dealer and absorbs the shares at $57 per share to fulfill its best execution obligations.

Cevap

The order is triggered because the market price dropped below 58,convertingitintoalimitordertosellat58, converting it into a limit order to sell at 57 or higher. Since the prevailing market price of 55islowerthanthe55 is lower than the 57 limit price, the order remains unexecuted on the order book.
When a stock gaps down below the stop price of a Sell Stop-Limit order, the order is activated by the trade/opening price occurring at or below the stop trigger (58).Uponactivation,theorderturnsintoalimitorderwithaspecifiedpriceof58). Upon activation, the order turns into a limit order with a specified price of 57 or better. Because the current market price of 55islowerthantherequired55 is lower than the required 57 limit price, the order cannot execute and remains pending on the order book until the market price reaches $57 or the order is canceled.

Adım Adım Çözüm

1
Evaluate the trigger condition for the stop component.
The stop price is 58.Sincethestockopenedat58. Since the stock opened at 55 (which is less than or equal to $58), the stop condition is met and the order is triggered.
A sell stop order triggers when the security trades at or below the designated stop price.
2
Determine the order type post-trigger.
The order converts into a limit order to sell 500 shares at $57 or better.
A stop-limit order specifies that upon activation, the order becomes a limit order rather than a market order.
3
Compare the limit price requirement to the available market price.
The market price is 55,whichislowerthanthelimitpriceof55, which is lower than the limit price of 57. Therefore, the order cannot execute and stays on the order book.
A sell limit order can only be executed at the specified limit price ($57) or higher.

Anahtar Kavram

Stop-Limit Order Trigger and Execution Mechanics
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Konular

Types of Orders and Order Execution Strategies