I have the following question from my SIE textbook:

ABC stock is currently trading at \$63. Julia Miller would like to purchase ABC stock, but not at \$63. If the price of ABC stock were to fall to \$58 or less, then Miller wants to buy the stock. Which type of order should Miller place considering her objective?

A. Market order

The answer is B with the explanation "While market orders are always executed immediately at the current market price, limit orders can only be executed at the limit price designated by the customer or better. For a buy limit order, or better means at the limit price or lower. Miller should place a buy limit order at \$58"

However, stop orders seem exactly like an if-then statement so why can't the answer also be C? A buy stop will trigger a market order when the stock price hits \$58. Or could the answer also be D? A buy stop limit will trigger a limit order which can be set so that Julia doesn't end up buying at \$63 after the price reaches the \$58 stop.

• Buy Limit order - Buy the stock at this price or cheaper
• Buy Stop order - Buy the stock at any price after it goes above the stop level.
• Buy Stop limit order - Buy the stock at the limit price or cheaper after it goes above the stop level.

why can't the answer also be C?

A "buy stop" order will execute a market order after the price goes above the stop price. It is used when you have a short position and want to "stop" losing money if the price goes too high.

A "sell stop" would execute if the price goes below the stop and is used when you own the stock but want to "stop" losing money if the price falls too low.

Or could the answer also be D?

No - similar to above, a "buy stop limit" order will execute a buy limit order (instead of a market order) after the price goes above the stop level.

• I like this, and explaining "stop" as in stop losing money is helpful in remembering this Commented Jun 5 at 20:17
• Thanks - That's how I remember what it means :) Commented Jun 5 at 20:26
• To use the language of the question: a limit order is executed at the order price or better, while a stop order is executed at the order price or worse. Commented Jun 8 at 23:17