- An investor or trader can use several types of orders to buy and sell stock shares. Market orders buy or sell stock at the price a stock is currently trading in the market. Limit orders allow a trader to set a specific price at which a stock will be bought or sold. Stop orders are triggered when a stock passes through a preset price, initiating a market sell order on a stock position owned by the investor.
- A stop-loss on stocks is used to close out a stock investment position if the share price drops below a certain level. Investors and traders buy stocks they believe will go up in value, but that is not always the case. A stop-loss order will automatically sell the shares if the price drops below a preset price selected by the investor. The use of stop-loss orders reduces the time a trader or investor must spend watching stock prices to prevent excess losses.
- A stop-loss is set up through the trading screen of an investor's online brokerage account. Required entries include the stock symbol and number of shares owned. There will be an area to select different order types and a Stop order is selected. A price at which the order will be initiated is entered. The stop-loss price must be below the current price of the stock. Finally, the order should be designated as Good-Til-Canceled, called GTC.
- The sell price for a stop-loss order should be set at a level to avoid the short term price fluctuations of the stock. The worst effect of a stop-loss is to have the stock decline to the stop price, have the shares sold and then the share price moves upward to new highs. Stop loss prices can be adjusted upward if the stock value continues to climb, but a stop-loss price should never be lowered. A stop-loss sell order is triggered when the stock price drops below the set price. If the stock is falling rapidly, the order may be filled at an even lower price.
Stock Market Orders
Purpose of Stop-Loss Orders
Setting Up Stock Stop-Loss
Stop Loss Considerations
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