Question of the Week

An investor owns 100 shares of LKI at $58. He needs to limit his loss to 5 points or less and will accept a longer time for the order to be executed, to make sure the loss does not exceed 5 points. Which of the following orders would be the best recommendation?

A) Sell limit order
B) Sell stop-limit order
C) Sell stop order
D) Buy stop order


Answer:

The correct answer is B) Sell stop-limit order

A sell stop-limit order would be the best choice. A sell stop-limit order specifies a price, but will not turn into a market order. This order will only get executed at the price or better. Stop orders, although quicker in execution, will turn into market orders and the customer will not be guaranteed a specific price. Stop-limit orders are risky, in that the order may or may not get executed, but in this situation, it is the best choice.

© 2004 American Investment Training, Inc.