Which order type is typically used to automatically trigger a trade when the price reaches a specified level to protect profits or limit losses?

Which order type is typically used to automatically trigger a trade when the price reaches a specified level to protect profits or limit losses?

• A. Market Order
• B. Limit Order
• C. Stop Order
• D. Short Selling

Answer: (C)

Protective exit triggers are designed to automatically exit a trade when price hits a predefined level. This is exactly what a stop order does: once the price reaches the stop level, the order becomes a market order and is filled at the next available price, helping to limit losses or lock in gains. For example, if you own a stock bought at 100 and set a stop at 95, a move down to 95 will trigger a sale and help cap downside. This contrasts with a market order, which executes immediately at the current price regardless of any level, and a limit order, which will only fill if the price reaches a specified level but may never execute if that level isn’t touched. Short selling is a trading strategy, not an automatic exit trigger, so it doesn’t describe an order type.

Protective exit triggers are designed to automatically exit a trade when price hits a predefined level. This is exactly what a stop order does: once the price reaches the stop level, the order becomes a market order and is filled at the next available price, helping to limit losses or lock in gains. For example, if you own a stock bought at 100 and set a stop at 95, a move down to 95 will trigger a sale and help cap downside. This contrasts with a market order, which executes immediately at the current price regardless of any level, and a limit order, which will only fill if the price reaches a specified level but may never execute if that level isn’t touched. Short selling is a trading strategy, not an automatic exit trigger, so it doesn’t describe an order type.