Industry Classification Methods and Gr ...
An industry is generally defined as a collection of companies that offer similar... Read More
The bid prices represent the price at which dealers are prepared to buy, while the ask prices, or offer prices, indicate the prices at which they are willing to sell. Ask prices consistently exceed bid prices.
Dealers also specify the quantities they are willing to trade at these prices, known as bid sizes and ask sizes, depending on whether they are associated with bids or offers.
The highest bid in the market is referred to as the best bid, and the lowest ask is known as the best offer. The market bid–ask spread is the difference between the best bid and the best offer.
Execution instructions is defined as how to fill the order. Here are many ways how orders can get filled:
Validity instructions is defined as when the order may be filled, with examples below:
Clearing is defined as how to arrange the final settlement of the trade. Unlike other instructions, clearing instructions are not attached to each order. Instead, clearing instructions simply indicate what entity is responsible for clearing and settling the trade and if the sale is a long sale or short sale.
Question
A trader submits a buy order at the beginning of the day on 10,000 shares of a stock trading at $48 per share. The stock gradually rises to $52 per share by market close. The trader acquired 5,000 shares of the stock over the day at a price between $50 and $51 per share, and the order was still valid when the market opened the next day. What order did the trader most likely submit?
- GTC, stop 48, limit 51buy order.
- GTC, stop 50, limit 51 buy order.
- Day, stop 50, limit 51 buy order.
Solution
The correct answer is B.
- Stop 50: The trader only starts buying when the stock reaches $50, which explains why they acquired shares at prices between $50 and $51.
- Limit 51: The trader is willing to pay up to $51 per share, but no more than that, which is why the shares were acquired between $50 and $51.
- GTC (Good-Till-Canceled): The order was still valid when the market opened the next day, meaning it was not a “Day” order (which would expire at the end of the trading day).
Thus, option B is the correct answer.