Answer: stop order.

## Explanation When an investor has a short position (selling borrowed securities with the expectation that prices will fall), they face the risk of adverse price movements (prices rising). To protect against this risk while still allowing for potential gains if prices fall, the appropriate order type is a **stop order**. ### Why a stop order is correct: 1. **Protection against adverse movements**: A stop order becomes a market order once a specified price (stop price) is reached. For a short position, a **stop buy order** would be placed above the current market price. If the price rises to the stop price, the order triggers and buys back the shares, limiting further losses. 2. **Opportunity for future gains**: Unlike a limit order that executes immediately at a specified price, a stop order doesn't execute until the stop price is reached. This allows the investor to continue benefiting from price declines while having protection in place. ### Why other options are incorrect: - **B. Limit order**: A limit order specifies the maximum price to pay (for buy orders) or minimum price to receive (for sell orders). While it can provide price control, it doesn't offer the same protection mechanism as a stop order for short positions. - **C. Market order**: A market order executes immediately at the best available price. This provides no protection against adverse price movements and would close the position immediately rather than providing ongoing protection. ### Key concept: For short positions, investors typically use **stop buy orders** to limit losses if prices rise. The stop price is set above the current market price, and if the price reaches that level, the order triggers to buy back the shares, thus limiting the loss on the short position.

Author: LeetQuiz .