Investing 101: Stop Order

Stop Order

As per the SEC definition: A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price.  When the stop price is reached, a stop order becomes a market order.  A buy stop order is entered at a stop price above the current market price.  Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they have sold short.  A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or to protect a profit on a stock that they own.

A few points about stop orders:

  • The stop price for buy orders is placed above the current market price.
  • The stop price for sell orders is placed below the current market price.
  • A stop order turns into a market order when the stop is triggered, so the final execution price or time of a stop order is not guaranteed.
  • The same risks of market orders apply to stop orders.
  • 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. 

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shakaama

Ex law school student. I was kicked out for revealing I had a heart actually beating inside. I used to be in a modern dance company. I'm working on my 7 miracles to be proclaimed a saint by the pope. #1 is really hard, but once i get over that hump the other 6 will be a cinch.

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