Question

Suppose you will buy 1000 shares of IBM, you give your broker a limit buy order with 50$/share and a stop to buy order 60$/share.

(1) If now the share price of IBM is 55$/share, if the broker can buy the shares? Why?
(2) If now the share price of IBM is 62$/share, if the broker can buy the shares? Why?

Answer 1

IBM Shares

Limit Buy Orders:

1. If now the share price of IBM is 55$/share, the broker can buy. The order states clearly that the range of prices when he could buy IBM shares are between $50 and $60. Since the range has not exceeded $60 dollars, he can continue buying until he had bought the 1000 shares you ordered.

2. If now the share price of IBM is $62 per share, he is not duly authorized to buy. The highest price at which he could buy had been exceeded. Therefore, is not duly authorized to buy.

Step-by-step explanation:

1. In brokerage relationships, which is an agency, the broker is expected to act according to the principal's instructions and in the best interest of his client.

2. As the client had clearly stated a price range within which the agent could buy a specified number of shares of IBM, it is expected that he obeys the stated instructions.