You are a principal trader. Your trading limit is 20,000 shares. Your current position is short 9,000 shares. You want to maintain a short position. A client wishes to buy 10,000 shares from you. From only the choices below, what price should you make?

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BlackTom AI · Accepted Answer

Question restatement: You are a principal trader with a trading limit of 20,000 shares. Your current position is short 9,000 shares. A client wants to buy 10,000 shares from you. From the choices provided, what price should you quote? The given answer option presented is: c. An offer that is slightly lower than the current market offer.

First, consider the objective: you are already short 9,000 shares and you want to maintain the short position. If you sell 10,000 more shares to the client, your short position would increase to short 19,000 shares (9,000 existing plus 10,000 newly sold). This is within your 20,000 share limit, so the trade can proceed without hitting the limit.

Why would you quote an offer slightly lower than the current market offer? Quoting a price that is a touch more attractive to the buyer (i.e., slightly lower than the market) makes it more likely that the client will execute the order with you rather than seeking a different counterparty or waiting for a higher-priced sale elsewhere. Executing this sale increases your short exposure by the full 10,000 shares, which aligns with your goal of maintaining or increasing the short position rather than reducing it.

Why this approach differs from the alternative price strategies (in general):
- Quoting a price higher than the market would make it less appealing for the client to buy from you, risking that the order is placed elsewhere or canceled, which could reduce your short exposure instead of maintaining it.
- Quoting a price exactly at the market or far below it could have additional implications for execution certainty, liquidity, and potential adverse selection, but the key driver here is ensuring the sale occurs to preserve the short rather than hedging or covering.

In summary, choosing an offer slightly below the current market offer is consistent with wanting to execute the sale to the client and sustain the short position within the allowed limit. Note: since the other answer options aren’t provided in the material, this analysis focuses on the logic behind option c and its alignment with the stated objective.

If more options were available, we would compare each to the two main goals: whether the price secures the sale to the client and whether it preserves the desired short exposure without exceeding the limit.

BFX3301 - S2 2025 Week 8 - Pre-class test (10 minutes) - 3%

You are a principal trader. Your trading limit is 20,000 shares. Your current position is short 9,000 shares. You want to maintain a short position. A client wishes to buy 10,000 shares from you. From only the choices below, what price should you make?

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