Stop Limit Orders And Stopped Stocks

by David Jenyns on October 28, 2009

A stop limit order specifies the price at which you hope to sell your stock before it falls further. To avoid some of this rigidity, an investor might place a stop limit order specifying one price for the stop and another for the limit order — say, 64 stop, 62 limit.

One other technique, often confused with the stop order, is “stopped stock.” If there is not enough stock to supply orders at 38, the stopped-stock request cannot be honored. It is highly important to learn about stop limit orders and stopped stock, so that you will not be left out in the cold if and when a volatile stock surges above your limit.

When it is properly calculated, the stop limit order is beautifully precise, but its big disadvantage, as can be seen, is its extreme rigidity. Fluctuations greater than anticipated can leave the buyer or seller high and dry, while his stock plummets or rises out of reach of his limit.

For the investor whose objective is dividends or long-term appreciation, the stop limit order and its variations are of no consequence. For the investor depending on capital gains over the short term, they have their advantages when properly applied.

Discover The Secrets To Stock Trading Online And Start Making Your Investments Pay


Previous post:

Next post: