Question

Difficulty: EasyTypes of Orders and Order Execution Strategies

An investor wants to purchase 100 shares of Acme Corporation, which is currently trading at $32 per share. However, the investor is willing to pay no more than$ 30 per share. Which type of order should the investor place to ensure the execution occurs only at $30 or lower?

Buy Limit orderAnswer
B
Buy Stop order
C
Market order
D
Sell Limit order

Answer

The investor should place a Buy Limit order at $30.

A Buy Limit order allows an investor to set a maximum price they are willing to pay for a security. It executes only at the limit price or a lower price, fulfilling the customer's requirement to pay no more than $30 per share.

Step-by-Step Solution

1

Identify the investor's goal and constraint

The investor wants to purchase shares but set a price ceiling of

30 per share below the current market price of

32.

Choosing the correct order type depends on whether the order is to buy or sell and whether a price limit or trigger condition is required.

2

Match the constraint to the appropriate order type

A buy limit order guarantees that an order to purchase will be executed only at the specified limit price ($30) or better (lower).

Limit orders set price constraints on execution.

Key Concept

Limit Orders vs. Market and Stop Orders

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Topics

Types of Orders and Order Execution Strategies