SIE Exam Question 73: Answer and Explanation

Question: 73

What does a buy limit order do?

• A. Allows an investor to set a maximum price he or she is willing to pay for a security
• B. Allows an investor to set a minimum price at which he or she is willing to sell a security
• C. Guarantees execution
• D. All of the above

Correct Answer: A

Explanation:

A buy limit order allows protection to an investor by providing the chance to set a maximum price they are willing to pay for a security. A sell limit order allows an investor to set a minimum price at which he or she is willing to sell a security. A buy limit order provides price protection to the investor in that it guarantees he or she will not pay over a certain price for that security, but accordingly, it will NOT guarantee execution of that order in the event that the price level of that security does not reach the investor's desired price or below.