Order "stop" on the sale of shares
You can place your order as an order "stop". This means that every time the price of the stocks of interest reaches the level you specify, your order automatically turns into a market order. Investors who buy stocks with a stop order usually do this to limit potential losses or protect their profits. Stop orders for purchase are always entered at a stop price that is higher than the current market price.
When placing a stop order for sale, you are trying to avoid further losses or to protect profits that occur if the stock price continues to fall. The stop price is always set below the current market price. For example, when you have stocks that you bought for $ 10 and are now selling for $ 25, you can decide to protect most of this profit by placing a stop order for sale, which states that the relevant shares should be sold when their market price will drop to $ 20, which guarantees you a profit of $ 10 per share.
You do not have to monitor the situation on the stock market every second. Instead, when the market price drops to $ 20, your stop order will automatically turn into a market order and be executed.
The big disadvantage of the stop order is that if for any reason a shock occurs in the stock market during the day that affects all stocks, a temporary price reduction may occur, which will cause your stop price to activate. If it turns out that such a fall in prices is nothing more than a short-term fluctuation, and not at all an indication that your shares are a “bad option” or that you risk losing your profits, then your shares may be sold even before as you have time to adequately respond to this situation.
After the stop price you specified is reached, the stop order automatically turns into a market order, and the price you actually receive may differ significantly from your stop price, especially in the case of a rapidly changing market situation. You can avoid this problem by placing a stop-limit order, which we will discuss in the next section.
Most often, stop orders are used for stocks that are bought and sold on the stock exchange. For example, you cannot place a stop order for stocks registered with NADAQ. If you require a stop, then your broker should actually simulate a stop order, watching the market and introducing a market or limit order that you set as a stop when the price of the relevant shares reaches the sales price you specified. Some broker-dealers do not accept the order "stop" for certain types of securities and almost never accept the order "stop" in respect of shares that are bought and sold on the over-the-counter securities market. If you intend to use stop orders, try to find out from the brokers you intend to work with, the following:
whether they accept stop orders;
what fee they charge for stop orders;
how to execute orders "stop", so that you later do not encounter any unpleasant surprises.
In the end, you are unlikely to like it if your execution of the stop order ends with the sale of shares that you did not intend to sell, or the sale of shares at an unacceptable price.
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