In a fast-moving equity market, an asset manager must execute a large order of 50,000 shares of XYZ Inc. The manager is concerned about the market impact of this order and does not want to drive the price up significantly when executing the trade. They are evaluating different order types to minimize this impact. The manager considers using the following order types: Market Order: An order to buy or sell immediately at the best available price. Limit Order: An order to buy or sell at a specific price or better. Iceberg Order: A type of limit order that limits the visible portion to the market, allowing the trader to hide the true size of the order. Given the manager's objective of reducing market impact while executing the trade, which order type would be the most suitable choice?

Exam

CFA Level 2

Section

Difficulty

Equity Investments

Order Type Selection in Large Trade Execution

Hard Equity Market Structure Order Types And Instructions

In a fast-moving equity market, an asset manager must execute a large order of 50,000 shares of XYZ Inc. The manager is concerned about the market impact of this order and does not want to drive the price up significantly when executing the trade. They are evaluating different order types to minimize this impact.

The manager considers using the following order types:

Market Order: An order to buy or sell immediately at the best available price.
Limit Order: An order to buy or sell at a specific price or better.
Iceberg Order: A type of limit order that limits the visible portion to the market, allowing the trader to hide the true size of the order.

Given the manager's objective of reducing market impact while executing the trade, which order type would be the most suitable choice?

Market Order

Limit Order

Iceberg Order

Hint

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