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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Introduction to the Securities Market

A broker's trading terminal shows a client order for 1,000 shares of a stock placed as a limit buy at ₹250 when the best available sell price is ₹248 with sufficient quantity. Assuming no price band or margin issues, what is the most likely outcome?

The buy limit order at ₹250 will match immediately with the resting sell at ₹248, and the trade executes at the resting order's price of ₹248. The limit price is only the maximum the buyer will pay, so it is neither rejected nor left waiting.

  1. AThe order will rest in the book until the price rises to ₹250
  2. BThe order will be rejected because the limit is above the market price
  3. CThe order will match with the sell order, and the trade is generally executed at the resting sell price of ₹248Correct
  4. DThe order will be converted into a market order at ₹250 for all shares

Explanation

In an order-driven market, an incoming buy limit order that is at or above the best sell price matches immediately. The trade takes place at the price of the resting order, here ₹248, giving the buyer price improvement. The limit of ₹250 is only the maximum price the buyer will pay.

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