Question

Suppose Apple Inc. is trading at $45 per shares. You hold some shares and want to limit your potential loss to $13 per share. Which of the following order would you place?

		Stop loss order at $32
		Limit buy order at $32
		Limit sell order at $58
		Stop buy order at $58

question 14

Answer 1

Correct answer is Stop loss order at $32.

You will have to place a stop loss sell order at $ 32 in order limit your loss to $ 13 per share.

Stop loss order is the order given to the broker to buy or sell the securities when its price reaches that limit. Whenever stop loss price is hit, it will be bought or sold based on the order (buy/sell) you placed.

Here, as you already hold the Apple Inc shares and you want to limit your loss to $ 13 per share, current price is $ 45 it means whenever the price of the share reaches 32 $, your stop loss sell order will be hit and the securities will be sold. By this, potential loss will be limited to 13 $ per share.

Limit buy order is for buy order, here we already hold the shares and want to sell it.

Limit sell order - Here, the order price is $ 58 which is greater than the current price, by this order loss wont be protected. this is a order to sell the share once the price reaches $ 58 .

Stop buy order - Here also, this is buy order. Also, buy order at more than the market price.

Hope it helps!