What is a stop buy order used for?

• A. To sell a stock when prices drop
• B. To buy stocks when prices rise above a set level
• C. To hold a position until a specific price is reached
• D. To execute transactions at market value

Answer: (B)

A stop buy order is specifically designed for investors who want to purchase a stock once its price surpasses a certain threshold. By placing this type of order, the investor effectively sets a pre-defined point at which they believe the stock will continue to rise, thus ensuring they enter the market at a favorable moment. This strategy is often employed when an investor anticipates upward momentum in the stock price, allowing them to capitalize on potential gains once that momentum is confirmed.

In the other scenarios presented, an investor selling a stock when prices drop aligns with a stop loss order, which is distinct from a stop buy order. Holding a position until a specific price is reached would imply a different strategy that doesn't necessarily accommodate buying only above a certain price. Lastly, executing transactions at market value pertains to standard market orders rather than the conditional nature of a stop buy order. Therefore, the unique purpose of a stop buy order is to facilitate purchases at targeted upward price movements, distinguishing it from other order types.