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CFA Level 2
Equity Investments

Optimal Order Type for Volatile Stocks

Very Hard Equity Market Structure Order Types And Instructions

David is an experienced equity trader managing an active portfolio. He is analyzing the order types available to optimize execution costs and market impact. Recently, he encountered a scenario where he needed to buy shares of Company XYZ, which is experiencing high volatility and low liquidity. David has three order types available: a limit order, a market order, and a stop order.

He is particularly concerned about the best way to enter the trade without significantly affecting the current market price while ensuring a timely execution. Given these considerations, which order type should David choose to balance execution certainty with price control?

Hint

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