Trading, Accounts & Prohibited ActsQuestion 213 of 398
A stock trades at $100. An investor places a sell stop order at $92 and a separate sell limit order at $110. Which describes the intended strategy?
a.Both orders will execute immediately
b.The stop protects gains on the upside and the limit protects on the downside
c.The stop limits downside loss at around $92 while the limit takes profit at $110 or higher
d.Neither order can be entered at the same time
Explanation
The sell stop at $92 (below the market) triggers a sale to limit losses if the stock falls, while the sell limit at $110 (above the market) sells to capture profit if the stock rises. Together they bracket the position with downside protection and an upside target.
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