FRM Part I · FRM Exam Part I · Futures Markets
A trader wants to buy a futures contract only if the price rises to 82.00 from the current 80.00, because she believes a rise to that level confirms an upward breakout. She wants the order executed at the best available price once 82.00 is reached. Which order type should she use?
She should use a stop order to buy at 82.00. A buy stop becomes a market order when the price reaches or trades above the trigger, which fits a breakout strategy. A limit buy would fill at lower prices and a market-if-touched buy triggers on a decline.
- ALimit order to buy at 82.00
- BStop-loss (stop) order to buy at 82.00Correct
- CMarket-if-touched order to buy at 82.00
- DFill-or-kill order to buy at 82.00
Explanation
A buy stop order becomes a market order once the price reaches or exceeds the stop level, matching her breakout intent. A buy limit at 82.00 would execute immediately at 80.00 or better, and a market-if-touched buy triggers when the price falls to the level, not rises.
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