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Stop Orders, Limit Orders, and Stop Limit Orders
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All these orders can be used to set conditions for entering or exiting positions. This is in contrast to Market Orders where you usually get a price close to what you expect, but frequently - as with a piece in a box of chocolates - you may be unpleasantly surprised. Stop Orders give you more control, but as they become Market Orders when triggered, surprises are possible with them also, unless they are combined with Limit Orders, i.e., unless you make them Stop Limit Orders instead of just Stop Orders.
---- LIMIT LIMIT SELL (You get this price or higher, IF filled)
LIMIT BUY (You pay this price or lower, IF filled)
.10 (typical -- up to you to specify)
---- STOP BUY STOP (STOP LOSS Buy Back Order if Short)
(Buy Order to open a Long Position)
.15 (typical -- set by broker)
---- ASK (YOU PAY this - the higher - mnemonic: "A" for attic)
---- BID (YOU GET this - the lower - mnemonic: "B" for basement)
.15 (typical -- set by broker)
(Sell Order to open a Short Position)
---- STOP SELL STOP (STOP LOSS Sell Order if Long)
.10 (typical -- up to you to specify)
---- LIMIT LIMIT BUY (You pay this price or lower, IF filled)
LIMIT SELL (You get this price or higher, IF filled)
You are interested in a stock, and you want to buy it if it gets
up to a certain price.
You put in a Buy Stop (Buy to Open) order.
If the price hits your price, your order becomes a Market Order, and
will be filled at whatever price the Market Maker gives you.
Usually at or close to the level you specified.
But say you put in the order the night before, and the stock takes a huge
jump up at the open, way up past your stop price.
Tough luck, you just bought at a much higher price than you expected.
You are short a stock, and you want to buy it back if the price rises
to a level you have determined as a stop loss for bailing out of the short.
You put in a Buy Stop (Buy to Close, Buy to Cover, Buy Back) order.
If the price hits your price, your order becomes a Market Order, and
will be filled at whatever price the Market Maker gives you.
Usually at or close to the level you specified.
But say you put in the order the night before, and the stock takes a huge
jump up at the open, way up past your stop price.
Tough luck, you just bought back at a much higher price than you expected.
You are interested in a stock, and you want to short it if it gets
down to a certain price.
You put in a Sell Stop (Sell Short to Open) order.
If the price hits your price, your order becomes a Market Order, and
will be filled at whatever price the Market Maker gives you.
Usually at or close to the level you specified.
But say you put in the order the night before, and the stock takes a huge
dump at the open, way down past your stop price.
Tough luck, you just sold (shorted it) at a much lower price than you expected.
You are long a stock, and you want to sell it if the price drops
to a level you have determined as a stop loss for dumping it -
getting out of the long position.
You put in a Sell Stop (Sell to Close, Stop Loss) order.
If the price hits your price, your order becomes a Market Order, and
will be filled at whatever price the Market Maker gives you.
Usually at or close to the level you specified.
But say you put in the order the night before, and the stock takes a huge
dump at the open, way down past your stop price.
Tough luck, you just sold at a much lower price than you expected.
You are interested in a stock, and you want to buy it if it gets
down to a certain price.
Buying a dip.
You put in a Buy Limit order for that price.
You are guaranteed that you will buy the stock at that price or lower,
IF the order can be filled.
(In some cases, your price may be touched and reverse, and there
was not enough offered at that price to fill your order.)
The Buy Limit order is sort of the opposite of a Buy Stop order;
where you are sometimes unpleasantly surprised with a Buy Stop
order fill, you frequently are pleasantly surprised with a Buy
Limit order fill.
Say the stock gaps down, either at the open or during the day from
a level above your Limit order price to a level way below.
You sometimes will get filled at a much better (lower) price than
you expected.
You have some stock, and you want to sell it if it gets
up to a certain price.
Selling on a rally or on reaching a target.
You put in a Sell Limit order for that price.
You are guaranteed that you will sell the stock at that price or higher,
IF the order can be filled.
(In some cases, your price may be touched and reverse, and there
was not enough wanted at that price to fill your order.)
The Sell Limit order is sort of the opposite of a Sell Stop order;
where you are sometimes unpleasantly surprised with a Sell Stop
order fill, you frequently are pleasantly surprised with a Sell
Limit order fill.
Say the stock gaps up, either at the open or during the day from
a level below your Limit order price to a level way above.
You sometimes will get a much better (higher) price than
you expected.
The Stop Limit order is a special order combining a Limit with a Stop Order.
These are used as Stop Orders, but the Limit specification eliminates
the sometimes unexpected and unpleasant fills you may get
with Stop orders alone.
The Stop Limit orders are used to enter positions, either long or short,
to prevent getting fills that are out of line with your expectations.
You generally do not want to use a Stop Limit order as a Stop Loss order.
You use Stop Loss orders to bail out of a position, long or short.
If you try to use a Stop Limit order to exit a position, you run a large
risk of the price going past your prices, so you will still have your
position, and be subject to even greater losses.
You are interested in a stock, and you want to buy it if it gets
up to a certain price.
But, you do not want to pay too much.
If you get the stock at too much higher a price than you want
as could possibly happen with a Buy Stop (Buy to Open) order, that
would cut into your profit potential when you go to sell.
You put in a Buy Stop Limit (Buy to Open) order.
If the price hits your Stop price, your order becomes a Limit Order,
and it will be filled at a price at or below the Limit price
you specified.
IF it is filled at all.
If your Stop is triggered, but the price jumps to above your
Limit, you will not be filled.
See the Stop Limit area at the top of the diagram above.
You are interested in a stock, and you want to short it if it gets
down to a certain price.
But you do not want to sell it at too low a price
If you sell the stock at too much lower a price than you want
as could possibly happen with a Sell Stop (Sell Short) order, that
would cut into your profit potential when you go to buy it back.
You put in a Sell Stop Limit (Sell Short to Open) order.
If the price hits your Stop price, your order becomes a Limit Order,
and it will be filled at a price at or above the Limit price
you specified.
IF it is filled at all.
If your Stop is triggered, but the price drops below your
Limit, you will not be filled.
See the Stop Limit area at the bottom of the diagram above.
Check back in a few days for STOP LIMIT order examples.
A Core Position is defined as a core or basic position in a readily tradable item, including such things as precious metal (PM) bullion or coins, stocks, mutual funds, exchange traded funds (ETFs), etc. Whatever it is you are trading will here be called the "item".
A Core Position Account comprises a quantity of the item AND a cash reserve position. The cash reserve position enables purchases adding to the quantity of the item from time to time. Proceeds of the sales of some of the item, from time to time, are added to the cash reserve position. The cash reserve position enables purchases adding to the quantity of the item from time to time...
Core Position Trading™ (CPT) is defined as buying or selling, adding to or subtracting from, the core position of the item in such a manner as to, over time, increase both the amount of the item AND the cash in the account.
More about Core Position Trading
TOPICS & ARTICLES
Glossary
Core Position Trading
AIM Stock Buy & Sell Calculator
Technical Analysis
Stocks and ETFs
Stop, Limit, Stop Limit Orders
Stock Options
Options - The Very Basics
Options Premium Intrinsic & Time Value
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