What type of order is adjusted downward by the amount of the dividend on the ex-dividend date?

The correct answer is that a stop order is adjusted downward by the amount of the dividend on the ex-dividend date. This occurs because, on the ex-dividend date, the stock price generally declines to reflect the fact that the dividend will not be paid to new shareholders who purchase the stock after that date.

When a stop order is in place, it is designed to trigger a market order once a specified price (the stop price) is hit. If the stock is expected to open lower due to the adjustment for the dividend, the stop price would need to be adjusted accordingly to ensure that it remains effective under the new price conditions. This adjustment accounts for the decrease in value due to the dividend payout, allowing the stop order to remain relevant and actionable within the new trading landscape.

In contrast, limit orders, market orders, and fill-or-kill orders do not automatically adjust for dividends in this manner, as they are executed based on different principles and objectives. Limit orders specify a price at which to buy or sell, market orders execute at current market prices, and fill-or-kill orders are strict in requiring immediate completion or cancellation without consideration for price adjustments resulting from dividends.