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FRM Part I · FRM Exam Part I · Exchanges and OTC Markets

A trader places a sell order on an exchange with the instruction: 'Sell 10 contracts if the price falls to 92.00 or lower, then execute at the best available price.' The current market price is 95.00. Which order type is this?

It is a stop (stop-loss) order. A sell stop is placed below the current price and becomes a market order once the price trades at or below the trigger, here 92.00, so it executes at the best available price rather than a guaranteed level.

  1. AStop (stop-loss) orderCorrect
  2. BLimit order
  3. CMarket-if-touched order
  4. DFill-or-kill order

Explanation

A sell order that becomes a market order once the price falls to or below a trigger level is a stop order. A limit order would specify a worst acceptable price. A market-if-touched order for a sell would trigger when price rises to the level, not falls, and fill-or-kill concerns immediate complete execution.

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