Final answer:
All three provided statements about stop orders are correct. A stop order becomes a market order at a specified price, a sell stop order is placed below the current market price, and a stop order to buy is set above the current market price. The correct option is 1.
Step-by-step explanation:
The student is asking about the characteristics of stop orders in the context of trading securities. Examining the given statements, we can confirm that:
- A stop order will indeed become a market order once a security trades at or through a specified price. This is the nature of a stop order, which is designed to limit an investor's loss on a security position.
- A sell stop order is typically set at a price that is below the current market price, serving as a trigger to sell the security to avoid further losses should the price continue to fall.
- Similarly, a stop order to buy is placed at a price that is higher than the current market price to acquire the security in a rising market, with the anticipation that the price will continue to increase.
Therefore, all three statements about stop orders the student provided are TRUE.