What is a contingent order?

What is a contingent order?

• A. An order for simultaneous transactions involving two different securities
• B. A buy order that has no expiration
• C. An order pending approval from a regulatory body
• D. An order that must be executed within the week

Answer: (A)

A contingent order refers to an order that is dependent on certain conditions being met before it can be executed. In the context provided, the correct definition aligns with simultaneous transactions involving two different securities. This means that the execution of one part of the order is tied to the successful execution of the other part, ensuring that both transactions occur at the same time or under specific circumstances.

This type of order can be beneficial for traders looking to hedge risks or make complex trades that require coordination between multiple securities. For instance, a trader might want to buy one security while simultaneously selling another, contingent on market conditions, hence the term "contingent."

The other options do not accurately reflect the nature of a contingent order. For example, a buy order that has no expiration does not encompass the conditional aspect inherent in contingent orders. Similarly, an order pending approval from a regulatory body or an order that must be executed within a specific timeframe do not capture the simultaneous transactional requirement that characterizes contingent orders.