Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesEasy
A client places an order to sell 200 shares of XYZ stock at $45.00 stop, GTC. The current market price is $46.50. After the order is placed, the stock price begins to fall. At what point does this order become a market order?
- AWhen the stock trades at or above $46.50
- BWhen the stock trades at or below $45.00
- CWhen the stock trades at $45.01
- DWhen the stock trades at $44.99
Show answer & explanationAnswer & explanation
Correct answer: B. When the stock trades at or below $45.00
A stop order becomes a market order once the stop price is reached or passed. For a sell stop order, this occurs when the stock trades at or below the specified stop price.
Why the other options are wrong
- A. This refers to the stock trading above its current price, which is not relevant for a sell stop order trigger.
- C. The stop price is $45.00, so $45.01 would not trigger the order.
- D. While $44.99 would trigger the order, the trigger point is exactly $45.00 or lower.
Sell Stop Order
An order to sell a security when its price falls to or below a specified stop price, at which point it becomes a market order.
- Used to limit losses on a long position.
- Becomes a market order once triggered.
- Execution price is not guaranteed.
Memory trick: A 'Stop' sign means 'stop and go' to market.