Securities Industry Essentials (SIE) ExamUnderstanding Trading, Customer Accounts, and Prohibited ActivitiesMedium
A client places an order to sell 300 shares of XYZ stock at $55.00 stop, GTC. The current market price is $56.00. Which of the following statements is TRUE regarding this order?
- AThe order will be executed immediately at $55.00.
- BThe order will be canceled if the stock price does not reach $55.00 by the end of the day.
- CThe order will become a market order if the stock price falls to $55.00 or below.
- DThe order will become a limit order at $55.00 if the stock price falls to $55.00.
Show answer & explanationAnswer & explanation
Correct answer: C. The order will become a market order if the stock price falls to $55.00 or below.
A sell stop order becomes a market order once the stop price is triggered. Since it's a GTC (Good Till Canceled) order, it remains active until executed or canceled, not just for the end of the day.
Why the other options are wrong
- A. The order is a stop order, not a market order, and is currently below the market price, so it won't execute immediately.
- B. GTC means 'Good Till Canceled', so it does not expire at the end of the day.
- D. This describes a sell stop-limit order, not a simple sell stop order.
Sell Stop Order
A sell stop order is an order to sell a security when its price falls to a specified stop price. Once the stop price is reached or passed, the order becomes a market order and is executed at the best available price.
- Used to protect profits or limit losses on a long position.
- Placed below the current market price.
- Triggers when the market price hits or drops below the stop price, then becomes a market order.
Memory trick: Selling stops the fall, then it's a market brawl!