Explain the Use of Limit Orders and Stop-Loss Orders in Rebalancing

question 33

Essay

Explain the use of limit orders and stop-loss orders in rebalancing an investor's stock portfolio. What are the principal risks in using these orders?

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Definitions:

Spot-Futures Parity

A financial theory stating that the spot and future prices of a commodity, currency, or security will converge at the futures contract's expiration.

Violation

An instance of failing to comply with a set rule, regulation, or standard.

Arbitrage Opportunities

Situations where a profit can be made with no risk by simultaneously buying and selling assets in different markets or forms due to price discrepancies.

Investors

Individuals or institutions that allocate capital with the expectation of receiving financial returns.