Securities Trader Representative (Series 57) Practice Exam

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In a scenario where three market makers quote a stock, what would be the execution price if an order to buy at 18.75 is entered?

  1. 18.25

  2. 18.50

  3. 18.60

  4. 18.70

The correct answer is: 18.50

In this scenario, the execution price of the order to buy at 18.75 would typically be determined by the best available offer price from the market makers. Market makers provide liquidity to the market by offering to sell shares at their quoted ask prices. When a buyer places an order to purchase at a specific price, the best ask price below that buy price dictates what they will pay. In this situation, if the highest price you can buy for is 18.70 from one of the market makers, this would be the execution price when entering a buy order at 18.75. Since this price is lower than the buy order, the transaction can be completed at 18.70. The choice of 18.50 would generally indicate it is an available ask price from a market maker, but if 18.70 is available and lower than the entry price, it should be prioritized. Thus, the execution price will be where the buyer can first execute their order, making 18.70 the correct outcome as it is the best price that meets the order criteria without exceeding the Buy price. The execution aligns with the provided market conditions, particularly if it represents an active ask in the quote of the market makers.