Order Types
An investor owns 500 shares of XYZ at $60 and wants to protect against a significant price decline. Which order should they place?
A sell stop order protects a long position. Placed below the market at $55, it will trigger if the price falls to $55, converting to a market order to sell and limiting the investor's loss. Buy stops protect short positi
Complete Analysis & Legal Rationale
A sell stop order protects a long position. Placed below the market at $55, it will trigger if the price falls to $55, converting to a market order to sell and limiting the investor's loss. Buy stops protect short positions; limit orders are for price targets, not loss protection.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing concept in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing concept in the explanation.
Does not match the governing concept in the explanation.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.