Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesEasy
A client places an order to buy 100 shares of XYZ stock at a limit price of $50.00. The current market price is $50.50. Which of the following statements is true regarding this order?
- AThe order will be executed at the best available price above $50.00.
- BThe order will be executed immediately at $50.50.
- CThe order will be placed on hold until the client confirms the price.
- DThe order will only be executed if the market price drops to $50.00 or lower.
Show answer & explanationAnswer & explanation
Correct answer: D. The order will only be executed if the market price drops to $50.00 or lower.
A buy limit order specifies the maximum price the buyer is willing to pay. Therefore, the order will only be executed if the market price falls to the limit price or below.
Why the other options are wrong
- A. A limit order sets a maximum price for buying, not a minimum for selling.
- B. A buy limit order will not execute above the specified limit price.
- C. Limit orders are active orders in the market, not placed on hold for client confirmation after submission.
Buy Limit Order
An order to buy a security at no more than a specific price. It will only execute at the specified limit price or lower.
- Sets a maximum purchase price.
- Ensures price protection for the buyer.
- May not execute if the market price remains above the limit.
Memory trick: Limit orders 'limit' your risk on price.