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What is the correct term for an order that has been executed?
An order that has been executed is known as a 'filled' order.
You buy shares in ABC plc, currently trading at 500p. Although the price is forecast to rise over the next few weeks, you expect it to fall shortly afterwards. You set a limit order to close the trade if it reaches 525p. ABC plc's share price rises to 550p before plummeting to 400p. What happens to your trade?
Your limit order was set to trigger at 525p. This means you didn't fully profit from the price peaking at 550p, but neither did you lose anything when it fell to 400p.
'When trading a derivative contract you...'
With a derivative contract you never own the underlying asset directly, but you have a financial interest in its performance.
You purchase 100 shares of XYZ Inc for $50 each. You think the price could skyrocket, but are also wary it could fall considerably. You decide to attach a guaranteed stop to the trade at $40 just in case. A few weeks later the share price of XYZ Inc stands at $30. Ignoring any commission fees or charges, how much loss have you sustained in dollars?
You placed a guaranteed stop at $40, which is $10 below the purchase price, so in this scenario you would have suffered a $1000 loss ($10 x 100 shares). Without your stop order, you could have lost $2000 or more.
What is the term used when a trade executes at a worse price than your stop order has specified?
Slippage often occurs during periods of high volatility when market orders are used, or when large orders are executed and there isn't enough interest at the desired price level to maintain the price of a trade.
Food Conglomerate plc is currently priced at 1000p per share. You decide to open a leveraged position and buy 400 shares. Your provider's margin requirement for Food Conglomerate plc is 5%. What is your maximum possible loss on this position (assuming you don't use a stop-loss), and how much margin must you pay?
If the stock falls to zero, your loss is equivalent to the full value of the shares (1000p x 400 shares = 400,000p or £4000). Your margin payment is 5% of the full value of the shares (£4000 x 0.05 = £200).
Which type of order is being described below? 'If this order can't be filled in full immediately, it will be cancelled.'
A fill or kill order designates that a trade must be executed immediately and completely or not at all.
Say you want to buy 5000 shares in Sports Giant Inc and each share is priced at $2. You find a provider offering leverage facilities, and see it's charging a margin deposit of 5%. How much margin would you need to put down to open your position (in dollars)?
The full value of the position is $10,000 (5000 shares x $2). Your margin deposit is 5% of this ($10,000 x 0.05 = $500).
Which type of order is being described below? 'This order is an instruction to trade when a market's price reaches a level that's more favourable than the current price.'
A limit order can be used to open a new trade, but you can also use it to close an existing position - taking profit when the market hits your target level.
You want to go long on Tech Corp Inc and the current share price is $1. You find a provider offering leverage facilities which sets a margin requirement of 5% to open the position. If you put down $250 to open the trade, how many shares do you have exposure to?
When trading on leverage you only have to put up a small fraction of the total value of the position to open your trade. In this scenario it was 5% of $5000 ($250). However you still have exposure to the full size of the position - in this case, 5000 shares.