CMFAS RES 2B Derivatives Dealing Practices & Skills question: commodity futures contract with a stop-loss

CMFAS RES 2BDerivatives Dealing Practices & Skills

A representative is long a commodity futures contract with a stop-loss at 1,800. Overnight, adverse news breaks and the next trade in the market prints at 1,720, with no trades in between. Which statements are correct? (a) The position will be liquidated at around 1,720, not 1,800. (b) This illustrates gap risk. (c) The stop-loss failed because it was set incorrectly. (d) Representatives should take note that gaps can fall below stop-loss levels.

A (a), (b), (c) and (d)
B (a) and (b)
C (a), (b) and (d)
D (b) and (c)

Show the answer and explanation

Answer: C. (a), (b) and (d)

RES 2B 6.7.2.3: the price gapped past the stop with no trading in between, so liquidation happens at the first available price, around 1,720. The stop was not 'set incorrectly'; gap risk is inherent, which is why the guide tells representatives to take note of it. Takeaway: stops trigger, they do not guarantee.

Common mistake

Statement (c) blames the stop level; the cause is the gap, not the setting.

Practise more RES 2B Derivatives Dealing Practices & Skills questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Study note: Derivatives Dealing Practices & Skills CMFAS RES 2Bpractice questions & mock exams

Related CMFAS RES 2B questions

When deciding whether a previous conflict-of-interest disclosure still suffices, FAA-G08 as summarised in the RES 2B study guide directs the dealer to consider which of the following?Which statements about executing a trading strategy under RES 2B 6.4.5 are CORRECT?Mr Pereira works for a listed commodity trading group whose staff policy bars him from dealing in derivatives on the commodities his employer trades. He also tells his dealer he wants no exposure to any market that restricts the repatriation of funds. The dealer proposes a strategy that includes a swap on one of those commodities, observing that the employer is unlikely to find out. Which statement is CORRECT?

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public CMFAS RES 2B syllabus. Unofficial, not endorsed by MAS or IBF. Verify figures and rules against current guidance before relying on them.