Another hypothetical situation

CFA Level III
#1

Suppose in an illiquid market, on a morning all the orders placed are market orders. There is no limit order placed. Now what is the price at which the system executes the market orders? Is it the last days closing price?

#2

what r u upto ? a Phd. in market orders ??? instead … do it in " orders of destiny " … a more interesting subject…

#3

I think… If they are market orders and there is someone else willing to take the other side of the trade they are executed at whatever the price the other side will agree to. Doesn’t have to be the end of the day If by illiquid, you mean that there is no one willing to enter the other side of the trades, then I think the order would go unfulfilled

#4

The " orders of destiny " get executed really fast , may be faster than " Market orders" … and these " orders of destiny " are indeed based on the last days closing good or bad deeds… Hope that helps…

#5

Thanks Zidane2, My apologies for posting these questions here. I know they are very stupid but I could not figure out and took the liberty. Really sorry. I also understand that these are not PhD level questions, maybe not even a graduate level, but I am just a CFA L2 candidate and a very confused one! Pingdanny, Just to make it clearer: Take a few assumptions, there are no limit orders available on the security at the market opening. But, there are market orders available, both sell and buy! So what happens now? what price does the system take? (my guess is that it will just take the Last days closing price and execute the orders)

#6

System? You must have another thread that said something about a system. Sorry must roll out the door

#7
  1. my first and most important advice would be .if u r getting confused… “IMMEDIATELY STOP STUDYING” … 2) my second but less important advice would be " STOP LIVING IN A HYPOTHETICAL WORLD" … I cannot start drinking from today considering the hypothetical situation that I passed level 3 …
#8

You probably have scalpers on the trading flloor who will try to push the price up or down a bit from the last close to make a tick or two. Since many traders need to close their books every day, there is probably a slight bias upwards, because people are likely to buy on an empty book in the absense of any conviction to sell, but last day’s close or the fair value of futures traded in the night set a game theoretic “focal point” for the opening trade. After the opening, it probably depends on the balace of buyers vs sellers.