Order "stop-limit" when buying or selling shares

Order "stop limit"You can protect yourself from any unpleasant surprises when buying or selling stocks by placing an order "stop-limit". This type of order combines the features of the order "stop" and the limit order. When the stop price you specified is reached, the stop order automatically becomes a limit order, not a market order.

 

The stop-limit order gives you maximum control over the price at which you will buy or sell your shares. You can avoid buying or selling your stock at a price that is significantly different from what you indicated. However, you risk that your order "stop-limit" will never be executed, which can occur in the case of a rapidly changing market situation with significant price fluctuations.

 

For example, it may turn out that the use of stop-limit orders poses a serious threat to your portfolio, especially in the event of bad news about your stocks and a rapid fall in the price of these shares.Despite the fact that you placed an order “stop-limit” and it should have worked at a certain price, price fluctuations in the market can occur so rapidly that the price limit you set can be lost. In this case, the limit aspect of the order actually prevents the sale of shares, and you risk remaining “in person” until you change your order. Let's say that in early 2001 you bought Nortel shares at $ 8, i.e. close to their maximum price. At the end of April, on the day when Nortel’s chief executive officer and vice president of finance was dismissed from his post, the share price of this company dropped to $ 4.05. It is possible that even before the occurrence of these events you placed an order “stop-limit” for the sale of Nortel shares at $ 5, but on the day of the dismissal of the leaders of this company the stock price fell so rapidly that the conditions of your order “stop-limit” could not be fulfilled.

 

Orders “stop-limit”, like orders “stop”, are most often used in cases when trading is carried out on the stock exchange, and not on the over-the-counter securities market. Broker-dealers can also limit the range of securities for which stop-limit orders can be placed.If you want to use stop-limit orders, check with your broker how to use such orders before attempting to execute them.



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