FINRA Series 7Processes and Confirms TransactionsEasy
A customer enters a sell stop order at 45, limit 44.50 on a stock currently trading at 47. Later, the stock trades at 45.10 and then 44.75. What happens to the order?
- AIt is triggered and becomes a limit order to sell at 44.50 or better
- BIt becomes a market order once the stop price is hit
- CIt is canceled because the limit price was never reached
- DIt is executed immediately at 45
Show answer & explanationAnswer & explanation
Correct answer: A. It is triggered and becomes a limit order to sell at 44.50 or better
A sell stop order becomes a live sell order once the stock trades at or through the stop price (45). Because a limit was attached (44.50), it becomes a limit order, not a market order, and will only execute at 44.50 or higher.
Why the other options are wrong
- B. A stop-limit order becomes a limit order, not a market order, when triggered.
- C. The order is not canceled; it becomes active once triggered.
- D. A stop order does not guarantee execution at the stop price.
Stop-Limit Order
An order that becomes a limit order once the stop price is reached or passed, executable only at the limit price or better.
- Sell stop triggers when market trades at or below stop price
- Buy stop triggers when market trades at or above stop price
- Once triggered, it becomes a limit order, not guaranteed to fill
Memory trick: Stop wakes it up, limit tells it where to stop.