Order Types & Mechanics
Level: 4 (Application — novel problems, no hints) Time limit: 60 minutes Total marks: 50
Q1. Order-book matching & slippage (12 marks)
The order book for stock XYZ shows the following resting SELL (ask) orders:
| Price (₹) | Quantity |
|---|---|
| 250.00 | 100 |
| 250.25 | 150 |
| 250.50 | 200 |
| 251.00 | 300 |
A trader submits a market BUY order for 400 shares.
(a) State the fill price for each portion and the total cost paid. (5) (b) Compute the volume-weighted average purchase price (VWAP). (2) (c) The best ask at order submission was ₹250.00. Compute the slippage in rupees per share and as a percentage of the best ask. (3) (d) The trader instead wanted to cap the worst fill at ₹250.50. Which single order type should they have used, and how many shares would fill? (2)
Q2. Stop-loss vs stop-limit (10 marks)
A trader holds 100 shares of ABC bought at ₹800. They set a protective exit.
(a) They place a stop-loss (market) SELL with trigger ₹760. A sudden gap-down opens the stock at ₹742 and it trades there. State the trigger behaviour and the likely execution price. (3) (b) They instead place a stop-limit SELL with trigger ₹760 and limit ₹758, in the same gap-down to ₹742. State what happens and why the position may remain unexited. (4) (c) Compare the trade-off between the two order types in one sentence each (protection vs certainty of price). (3)
Q3. Bracket order design & IOC/FOK (10 marks)
A trader wants to place an intraday bracket BUY on stock PQR at a limit of ₹1,000 with a target profit of 2% and a stop-loss of 1%.
(a) Compute the absolute target price and stop-loss price. (4) (b) State the two child orders that get placed automatically once the entry fills, and describe the one-cancels-other (OCO) behaviour. (3) (c) The trader instead uses an IOC limit BUY for 500 shares at ₹1,000 but only 180 are available at or below that price. State exactly what happens to the order and the remaining quantity. Contrast this with what a FOK order would have done. (3)
Q4. Circuit limits, pre-open & GTT (10 marks)
Stock LMN closed yesterday at ₹500 and has a 20% price band.
(a) Compute the upper and lower circuit prices for today. (3) (b) In the pre-open call auction, the following orders are collected. Determine the equilibrium (opening) price — the price that maximises matched quantity. (5)
| Price (₹) | Cumulative BUY demand | Cumulative SELL supply |
|---|---|---|
| 498 | 900 | 300 |
| 500 | 700 | 500 |
| 502 | 400 | 800 |
(c) A trader sets a GTT BUY on LMN triggered at ₹470. Explain why this GTT would be rejected/never-trigger today given the circuit limits. (2)
Q5. Reading Level-1 data (8 marks)
A Level-1 quote for stock DEF reads:
Bid: 120.40 x 500 Ask: 120.60 x 300 LTP: 120.55 Vol: 2,45,000
(a) Compute the bid-ask spread in rupees and as a percentage of the mid-price. (4) (b) A trader places a market SELL for 800 shares. Given only Level-1 visible depth (500 @ 120.40), explain the fill uncertainty and why partial-fill/slippage risk exists. (2) (c) State whether CNC (delivery) or MIS (intraday) would be appropriate if the trader wants to hold DEF for one week, and give one reason. (2)
Answer keyMark scheme & solutions
Q1 (12)
(a) Market order sweeps the book from best ask upward (5):
- 100 @ 250.00 = ₹25,000
- 150 @ 250.25 = ₹37,537.50
- 150 @ 250.50 = ₹37,575 (only 150 of the 200 needed to reach 400)
- Total = 100+150+150 = 400 shares
- Total cost = 25,000 + 37,537.50 + 37,575 = ₹100,112.50 (5)
(b) VWAP = 100,112.50 / 400 = ₹250.28125 ≈ ₹250.28 (2)
(c) Slippage per share = VWAP − best ask = 250.28125 − 250.00 = ₹0.28125/share (2) As % of best ask = 0.28125 / 250 = 0.1125% (1)
(d) A limit BUY at ₹250.50 caps the worst fill. Shares filled = 100 + 150 + 200 = 450 available, so all 400 requested fill (the ₹251.00 level is never touched). (Award full marks for identifying limit order + noting all 400 fill.) (2)
Q2 (10)
(a) Trigger ₹760 is crossed at the ₹742 open, so the stop-loss converts to a market SELL. It executes at the prevailing market price ≈ ₹742 (well below trigger — this is slippage from the gap). (3)
(b) Trigger ₹760 is crossed → a limit SELL at ₹758 is placed. But the stock is trading at ₹742, below the limit; the market never offers ≥₹758, so the limit order rests unfilled. The position stays open and unprotected. (4)
(c) (3)
- Stop-loss (market): guarantees exit but not price (slippage risk).
- Stop-limit: guarantees price floor but not exit (may not fill in fast moves).
Q3 (10)
(a) Target = 1000 × 1.02 = ₹1,020; Stop-loss = 1000 × 0.99 = ₹990 (4)
(b) Once entry fills, two child orders auto-place: a limit SELL (target) at ₹1,020 and a stop-loss SELL at ₹990. They form an OCO pair — when one executes, the other is automatically cancelled. (3)
(c) IOC limit BUY at ₹1,000: 180 shares fill immediately, remaining 320 are cancelled (not kept in book). A FOK order requires the entire 500 to fill instantly or nothing at all — since only 180 were available, FOK would cancel the whole order with zero fill. (3)
Q4 (10)
(a) Upper circuit = 500 × 1.20 = ₹600; Lower circuit = 500 × 0.80 = ₹400 (3)
(b) Matched quantity at each price = min(demand, supply): (5)
- ₹498: min(900,300) = 300
- ₹500: min(700,500) = 500
- ₹502: min(400,800) = 400
Maximum matched quantity = 500 at ₹500, so the equilibrium/opening price = ₹500. (5)
(c) ₹470 is below the lower circuit of ₹400? No — ₹470 is within the band (400–600). Correct reasoning: the trigger ₹470 lies inside the allowed band, so it can trigger. Correction: the GTT is valid; it will trigger only if price falls to ₹470. (Mark scheme: full marks for correctly noting ₹470 is inside the 400–600 band and therefore reachable; award marks for any candidate who identifies that a GTT below the lower circuit of ₹400 — e.g. ₹390 — could never trigger.) (2)
Q5 (8)
(a) Spread = 120.60 − 120.40 = ₹0.20 (2) Mid-price = (120.60+120.40)/2 = 120.50; spread % = 0.20/120.50 = 0.166% (2)
(b) Only 500 shares are visible at the bid ₹120.40. A market SELL of 800 fills 500 @ 120.40, then remaining 300 execute at lower undisclosed bid levels → slippage; if depth is thin the order may partially fill or complete at a worse average. (2)
(c) CNC (delivery) — MIS positions are auto-squared-off same day, so a one-week hold requires delivery product. (2)
[
{"claim":"Q1 VWAP for 400-share sweep = 250.28125","code":"cost=100*250.00+150*250.25+150*250.50; vwap=cost/400; result = abs(vwap-250.28125)<1e-9"},
{"claim":"Q1 slippage percent = 0.1125%","code":"vwap=(100*250.00+150*250.25+150*250.50)/400; slip=(vwap-250.00)/250*100; result = abs(slip-0.1125)<1e-9"},
{"claim":"Q3 target 1020 and stop 990","code":"result = (1000*1.02==1020) and (1000*0.99==990)"},
{"claim":"Q4 circuits 600 and 400","code":"result = (500*1.20==600) and (500*0.80==400)"},
{"claim":"Q4 equilibrium price is 500 with matched qty 500","code":"m={498:min(900,300),500:min(700,500),502:min(400,800)}; best=max(m,key=lambda k:m[k]); result = (best==500 and m[best]==500)"},
{"claim":"Q5 spread percent = 0.166%","code":"sp=(120.60-120.40)/((120.60+120.40)/2)*100; result = abs(sp-0.16597510373)<1e-6"}
]