Trading, Accounts & Prohibited ActsQuestion 192 of 398
An investor is short 100 shares of a stock at $30 and wants to limit potential losses if the price rises. Which order should be placed?
a.A sell limit order above $30
b.A buy stop order above $30
c.A sell stop order below $30
d.A buy limit order below $30
Explanation
A buy stop order placed above the current price triggers a buy-to-cover once the stock rises to the stop, capping the short seller's loss. Because a short position loses money as the price rises, a buy stop is the standard protective order.
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