Hope I'm posting in the right area.. Hi all, I've watched the market for years thanks to the parents... now I finally have enough to start trading myself.. Whats the difference between a STOP order and a STOP-LIMIT order? How would I use a STOP-LIMIT order? say for a stock at $1.50? Thank you very much!
Posted by Happy Valley on :
What Does Stop Order Mean? An order to buy or sell a security when its price surpasses a particular point, thus ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order.
Also referred to as a "stop" and/or "stop-loss order".
Investopedia explains Stop Order Investors commonly use a stop order before leaving for holidays or entering a situation where they are unable to monitor their portfolio for an extended period.
Stops are not a 100% guarantee of getting the desired entry/exit points. For instance, if a stock gaps down, the trader's stop order will be triggered (or filled) at a price significantly lower than expected.
Traders who use technical analysis will place stop orders below major moving averages, trendlines, swing highs, swing lows or other key support or resistance levels.
What Does Stop-Limit Order Mean? An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.
Investopedia explains Stop-Limit Order The primary benefit of a stop-limit order is that the trader has precise control over when the order should be filled. The downside, as with all limit orders, is that the trade is not guaranteed to be executed if the stock/commodity does not reach the stop price.
A stop order is an order that becomes executable once a set price has been reached and is then filled at the current market price. A limit order is one that is at a certain price or better. By combining the two orders, the investor has much greater precision in executing the trade. Because a stop order is filled at the market price after the stop price has been hit, it's possible that you could get a really bad fill in fast-moving markets.
For example, let's assume that ABC Inc. is trading at $40 and an investor wants to buy the stock once it begins to show some serious upward momentum. The investor has put in a stop-limit order to buy with the stop price at $45 and the limit price at $46. If the price of ABC Inc. moves above $45 stop price, the order is activated and turns into a limit order. As long as the order can be filled under $46 (the limit price), then the trade will be filled. If the stock gaps above $46, the order will not be filled.