CFA Practice Question

There are 275 practice questions for this study session.

CFA Practice Question

The market price of stock X is now $30. An order specifies the stock must be bought once the price drops to $25 or below. This order is likely to be a ______.
A. market order
B. limit order
C. stop order
Explanation: Investors can issue limit orders, whereby they specify prices at which they are willing to buy or sell securities. For example, if a stock falls below the limit on a limit-buy order, then the trade is to be executed. Orders can also be limited by a time period (1 day, 1 week, 1 month, good till canceled, etc.).

User Contributed Comments 5

User Comment
CJPerugini Isn't this the definition of a stop order? A limit order will only buy the stock if it is at or below $25 and you are not guaranteed all of your order will be filled.

A stop order is like pulling a trigger, once the price reaches $25 or below it turns into a market order and the stock MUST be bought even if the price goes above $25 during order fill.
maomao This is a limit order. A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. With a stop order, when the target price is reached it essentially becomes a market order, even afterwards the price goes back to where it was before.
johnnylane Hey, there is very similar question in this Question Bank:

The market price for stock Y is now $30. An order specifies the stock must be sold once the price drops to $25 or below. This order is likely to be a ________.

The answer to the question above is a stop order (specifically a stop-loss order). Why is the answer here a limit order, where as the answer to the question I typed above a stop order? Thanks.
Mhmdjamal @johnnylane:those two questions are not the same because of different positions ,long position for the main question and short position for your question
khalifa92 25 or below is the maximum amount to pay ( limit order )

The minimum start point is stop order
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