Canadian Securities Course (CSC) Level 1 Practice Exam

What is an On-stop Buy order?

1. An order to buy a stock when it is falling in price.

2. An order to buy a stock immediately at any price available.

3. A stop-loss order for short positions.

4. An order to buy a stock when it is rising in price.

The correct answer is: An order to buy a stock when it is rising in price.

An On-stop Buy order is indeed designed to trigger a purchase when the price of a stock begins to rise, indicating upward momentum. This type of order essentially instructs a trader to buy a stock once it reaches a specified price level above the current market price. The rationale behind this is to capitalize on the stock's upward movement, suggesting that the momentum might continue. These orders can be particularly useful in a bullish market, where traders seek to confirm a stock's strength before entering a position. As the price increases and reaches the established stop level, the order is activated, facilitating the purchase at or above that price. This approach helps traders avoid buying into a falling price, waiting instead for evidence of a trend reversal. A closer inspection of the context around other options shows that while they relate to different types of trading strategies and order placements, they do not align with the mechanism and purpose of an On-stop Buy order as accurately as the selected choice. The absence of orders related to purchasing stocks when falling or immediate market orders further underscores the specificity of the On-stop Buy order's intent.