Market Order

A customer enters a market order to buy 200 shares. What does the order guarantee?

1. A.A specific price, but not prompt executionThat describes a limit order, which guarantees price but not execution.
2. B.Execution only after the price risesA market order does not wait for a price move; it executes immediately.
3. C.Prompt execution, but not a specific priceCorrect — a market order fills right away at the best available price, without a price guarantee.
4. D.Both a specific price and prompt executionNo single order guarantees both; there is always a trade-off between price and execution.

Why: A market order guarantees execution — it fills immediately at the best available price. What it does not guarantee is the exact price paid.

A market maker quotes a stock 32.10 bid, 32.40 ask. A customer enters a market order to sell 100 shares. At what price does the customer sell?

1. A.The last reported sale priceThe last sale shows where the stock traded previously, not where the market maker is currently willing to buy.
2. B.32.10Correct. The bid is the price the market maker pays, so a customer selling at the market receives 32.10.
3. C.32.25The midpoint is not a tradable price against a market maker's quote. Market orders execute at the bid or the ask.
4. D.32.40This is the ask, the price a customer would pay to buy. Selling at the ask reverses the two sides of the quote.

Why: The bid is the price at which the market maker will buy, so a customer selling into that quote receives the bid of 32.10. The ask is what a customer would pay to buy.

Rosalind Cheng bought Verrick Pharma at $52 and it now trades at $68; she wants to protect most of that gain if the stock reverses. A sell stop order is...

1. A.Guaranteed to execute exactly at the stop priceOnce triggered it becomes a market order, so the fill price is not guaranteed.
2. B.Placed below the current market and becomes a market order when the stock trades at or below the stop priceCorrect — a sell stop sits below the market and triggers into a market order.
3. C.A type of limit order that never becomes a market orderA plain stop becomes a market order when triggered.
4. D.Placed above the current market to lock in a purchase priceThat describes a buy stop, not a sell stop.

Why: A sell stop is placed below the current market price and becomes a market order once the stock trades at or below the stop price. It is often used to protect a profit or limit a loss on a long position.

A customer calls his rep and says to buy 1,000 shares of Ferncliff Media right now, whatever it takes to get filled. A market order is:

1. A.Canceled at the close automaticallyAutomatic cancellation at the close describes a day order, a time-in-force instruction about how long an order lives. That is a separate dimension from price, and a market order normally fills immediately rather than surviving to the close.
2. B.Executed only at a specified price or betterThis is the definition of a limit order. A limit controls price and accepts the risk of never filling; a market order makes the opposite trade-off, guaranteeing execution and accepting whatever price is available.
3. C.Executed immediately at the best available priceCorrect - speed of execution, no price guarantee.
4. D.Held until a trigger priceWaiting for a trigger describes a stop order, which stays dormant until the market touches the stop price and only then becomes live. A market order is live the moment it is entered.

Why: A market order is executed immediately at the best available price.