General Securities Sales Supervisor (Series10) Practice Exam

Which order type does not get adjusted on ex-dividend date?

1. A Open Sell Stops

2. B Open Buy Limits

3. C Limit Orders

4. D Stops at Market Prices

The correct answer is: B Open Buy Limits

The correct answer is that open buy limit orders do not get adjusted on the ex-dividend date. This is because buy limit orders are set with a specified price that the trader is willing to pay for a security, and they only execute if the market price reaches that limit or a lower price. On the ex-dividend date, the stock's price typically drops by the amount of the dividend to reflect that the dividend will no longer be paid to new shareholders. However, buy limit orders will remain at the original specified price rather than being adjusted to reflect the new price of the stock following the dividend payment. This means that if the stock's price falls below the purchase limit set by the trader, the order could still be executed, assuming there are buyers willing to sell at that limit. In contrast, other order types, such as open sell stops and limit orders, will often experience adjustments to account for the dividend payout, affecting their execution. Therefore, understanding how open buy limit orders operate in relation to the ex-dividend date is crucial for trading strategies involving dividend-paying stocks.