Explanation:
Darren wants to enter the market only if the stock confirms its upward momentum by reaching $75. This requires a stop order to trigger the purchase. However, he also wants to control the maximum price he pays (no more than $78), which requires a limit order. A stop-limit order perfectly combines these two features: it remains dormant until the stock price hits the stop price ($75), at which point it automatically becomes a limit order to buy at the limit price ($78) or better.
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Q.9 Darren Jackson has recently finished his MBA and began working at a mid-sized asset management company. Since Darren does not have past trading experience, he pays additional attention while placing orders to buy/sell equity. Darren has noticed that the prices of stocks of Banana Inc. are closing higher every day. Currently, the stock is trading at $71 per share, but Darren is unsure if the rally will continue. However, he believes that if the price increases to $75, then the rally will continue, which will be the right time to enter the market. Which of the following types of orders is suitable for Darren if he wants to start buying the stock when the price increases to $75 or higher and keep filling as long as the stock is not above $78?
A
Limit order.
B
Fill or kill order.
C
Stop-limit order.
D
Market-if-touched order.