SIE practice questionmediumStop Orders
An investor owns 500 shares of DEF stock currently trading at $80. She places a sell stop order at $70. Which statement is TRUE?
- AOnce the stock hits $70, the stop order becomes a market order✓ Correct answer
- BThe order will execute only if the stock rises above $80
- CThe order guarantees a sale at exactly $70
- DThe order is immediately executed at $70
Explanation
Why A — Once the stock hits $70, the stop order becomes a market order
A sell stop order is placed below the current market and is triggered when the stock drops to the stop price. Once triggered, it becomes a market order and executes at the next available price, which is not guaranteed to be exactly the stop price.
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