A sell stop order for a customer account is entered:

A sell stop order is designed primarily as a downside protection tool for an investor who already owns a position (or is otherwise exposed to price declines). The defining feature is that the stop price is set below the current market price, and the order becomes a market order to sell once the security trades at or through the stop price. That is why the correct answer is B. Investors use sell stops to attempt to limit losses or protect gains by triggering a sale if the market moves against them beyond a chosen threshold.

Choice A is incorrect because a stop order is not entered “at the current market price.” If an investor wants immediate execution, they would use a market order (or possibly a marketable limit order). A stop order is specifically contingent on a future price trigger. Choice C is incorrect because setting a sell stop above the current market price would not be consistent with the typical purpose of a sell stop; however, a buy stop is commonly placed above the current market price to protect a short position or to enter a position on upward momentum. Choice D is incorrect because the “either above or below” concept applies when comparing different stop order types (buy stop vs sell stop). For a sell stop, the stop price is characteristically below the current market.

This is an SIE core trading concept: recognizing common order types and their intended use. In volatile markets, it’s also important to understand that once triggered, a sell stop generally becomes a market order, which means execution price is not guaranteed—especially during fast markets or gaps—making this a key risk/behavioral point about stop orders.