General Securities Representative (Series 7) Practice Exam

When instructed to "Sell my 300 shares of EGG when it hits 40," what type of order is this?

1. Market Order

2. Sell Limit Order

3. Buy Stop Order

4. Sell Stop Order

The correct answer is: Sell Limit Order

The instruction to "Sell my 300 shares of EGG when it hits 40" is indicative of a Sell Limit Order. A Sell Limit Order is placed to sell a security at a specified price or higher. In this case, the investor wants to sell the shares only if the price reaches $40 or exceeds it. This strategy is often employed when an investor has a price target in mind and does not want to sell unless they can achieve that target or better. In a Sell Limit Order, the limit price is set above the current market price. If the market reaches the limit price of $40, the order becomes executable; if the price does not hit this point, the order remains unfilled. This ensures that the seller does not sell shares below their desired price, thereby providing control over the selling price. Market Orders, on the other hand, execute immediately at the best available market price, which does not align with the stipulation of waiting for a specific price. Likewise, Buy Stop Orders and Sell Stop Orders are used to buy or sell in response to the stock reaching a certain price point but are typically employed in different contexts. A Buy Stop Order is used to purchase a security when it rises to a certain price, while a Sell