Classifications of Assets and Markets
Assets Securities: Includes both debt and equity securities. Securities may be further classified... Read More
Execution is defined as how to fill the order. Here are many ways how orders can get filled:
Validity 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 a 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 51 buy order.
- GTC, stop 50, limit 51 buy order.
- Day, stop 50, limit 51 buy order.
Solution
The correct answer is B.
Since no shares were purchased at prices between $48 per share and $50 per share, it’s unlikely the trader had a stop order at $48. Given that the order was not canceled at the end of the day, it could not be a day order. Therefore, the most likely option is GTC, stop 50, limit 51 buy order.