Final answer:
An investor looking to protect an existing long position would place a stop-loss order or a stop-limit order to limit potential losses. A stop-loss order is executed at market price once triggered, whereas a stop-limit order has a specified limit price and might not execute if the stock doesn't reach this price.
Step-by-step explanation:
To protect an existing long position in the stock market, an investor would place a type of order known as a stop-loss order. This order is designed to limit an investor's loss on a security position. If the stock price falls to a certain level, the stop-loss order is activated and converts to a market order, which is then executed at the current market price.
Alternatively, an investor might use a stop-limit order, which also specifies a stop price for the activation of the order. However, once activated, it becomes a limit order instead of a market order, meaning the stock will only be sold at a specified price or better. This can provide more control over the price at which the stock is sold, but it also carries the risk that the order might not be executed if the stock price does not reach the limit price.
It's important to remember that while stop-loss and stop-limit orders can provide protection against significant losses, they cannot guarantee to limit losses to the desired amounts due to market conditions such as gaps in stock price.