Securities Industry Essentials (SIE) ExamKnowledge of Capital MarketsMedium
An investor places an order to buy 100 shares of XYZ Corp. at a price of $50.00 per share. The stock is currently trading at $50.10. This order would be executed immediately only if:
- AIt is a stop order and the price rises to $50.00.
- BIt is a stop-limit order and the price drops to $50.00.
- CIt is a limit order and the price drops to $50.00 or lower.
- DIt is a market order.
Show answer & explanationAnswer & explanation
Correct answer: C. It is a limit order and the price drops to $50.00 or lower.
The investor placed a buy limit order at $50.00. This means they are willing to buy at $50.00 or lower. Since the current price ($50.10) is above their limit, the order will only execute if the market price drops to $50.00 or below. A market order would execute immediately at the current market price.
Why the other options are wrong
- A. A buy stop order is placed above the current market price to protect against a rising market, not a falling one for immediate execution.
- B. A stop-limit order would first trigger at a stop price and then become a limit order; it wouldn't execute immediately unless the market price hit the limit.
- D. A market order would execute immediately at $50.10, not $50.00.
Buy Limit Order
An order to buy a security at a specified price or lower. It guarantees the price but not the execution.
- Placed below the current market price.
- Executes only if the market price drops to or below the limit price.
- Used to get a better price than the current market.
Memory trick: Limit means you set the 'Limit' you're 'Willing' to pay.