Question

So I am having a really hard time on my investments homework. I would be grateful to just see examples like these so that I understand how to do them. My textbook is no help.

2.         XYZ stock traded last at $30.00 per share.

1. Provide an example of a buy limit order that you might place, and indicate how it would work.   

     b.    Suppose you bought XYZ's stock at $30.00 per share. Explain the stop order that you would place if you wanted to limit any loss in XYZ to a maximum of $5 per share.

Answer 1

a. Given XYZ last traded price is $30 per share

A limit order is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.

So, let say I want to purchase this share at $29. Hence, I would place a limit order of $29 that is when prices reaches $29 my order will get executed.

b. Suppose you bought XYZ's stock at $30.00 per share. Explain the stop order that you would place if you wanted to limit any loss in XYZ to a maximum of $5 per share.

So a stop order at $25 will limit loss to maximum of $5. This order will get executed if share price drops to $25. If the order gets executed when price drops to $25 my maximum loss would cut down tro $5 per share.