SIE Exam Question 272: Answer and Explanation

Question: 272

Mitigation of the risk of loss in a bearish market can be achieved by customers with vulnerable long stock positions placing:

• A. Sell limit orders
• B. Buy stop orders
• C. Sell stop orders
• D. GTC orders

Correct Answer: C

Explanation:

C: A client who owns stock is exposed to 100% loss of invested principal, unless the client engages is one of a number of strategies designed to mitigate/reduce the risk of loss. One such strategy is the sell stop order, in which the client picks a price at which he or she will exit/liquidate their stock position if the stock falls to that price level, 'stopping' the loss from getting any worse.