Explanation:
A stop-limit order with a stop price of $75 and the limit price of $78 will serve Darren's trading objectives. Currently, the price of Banana Inc. is $71, but as soon as the price increases to the stop price ($75 or higher), the order will become a limit order, and the order will start filling until the price reaches the limit price ($78).
Option A is incorrect. A limit order specifies a specific price. When the market price reaches the limit price, only then can the order be executed.
Option B is incorrect. A fill or kill order is a market order that will either be filled immediately or be canceled.
Option D is incorrect. A market-if-touched (MIT) order is a conditional order that becomes a market order when a security reaches a specified price, even if it does so only briefly.
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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.