You have been watching a stock that has dramatically increased in price for the last several days. Today it closed at $50 per share. You want to purchase this stock in the morning using your online brokerage account. You are willing to pay up to $53 a share but no higher. What type of purchase order should you use?

Question

Quizplus · Accepted Answer

A limit order allows you to set a specific price (in this case, $53) at which you are willing to purchase the stock. A market order would purchase the stock at the current market price, which could be higher than your limit, and a stop-loss order is used to limit losses on an already owned stock. A good-til-cancel order would keep the order open until it is filled or canceled, but it does not specify a price limit. Therefore, a limit order is the best choice for this scenario.

You Have Been Watching a Stock That Has Dramatically Increased