Question

Which of the following orders instructs the broker to buy at or above a specified price?

1) Market order
2) Limit order
3) Stop order
4) Stop limit order

Answer 1

The correct order type that instructs a broker to buy at or above a specified price is a stop order. This order becomes a market order once the stop price is hit, potentially executing at a price at or above the specified stop price.

Step-by-step explanation:

The order that instructs the broker to buy at or above a specified price is known as a stop order. Let's break down each type of order for clarity:

1. A market order is an order to buy or sell a stock at the best available current price and does not guarantee a specific price.
2. A limit order is an order to buy or sell a stock at a specific price or better, but there's no guarantee that the order will be executed.
3. A stop order, also known as a stop-loss order, is an order to buy or sell a stock once the price reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order.
4. A stop limit order is a combination of a stop order and a limit order. Once the stop price is reached, the stop limit order becomes a limit order to buy or sell at the limit price or better.

In summary, a stop order is used to limit loss or protect a profit on a stock that a trader owns. This type of order becomes active only when the stop price is reached, and it then instructs the broker to buy at the market price.