Two very basic exchanges that users at discount trade websites can use have a component called the stop price, which marks a point at which an investor decides to cut loss on a trade. Following is some information on the stop price, and its function in stock trading.
Stop Price in Stock Trading Online
Stop price is a price at which an investor decides to cut loss, by buying a rising stock that has shown enough upward momentum before it rises too high, or selling falling stock before it drops too low. It is a part of two basic orders, the stop (or, stop-loss), and the stop-limit, and a component of the more complex trailing stop trade. Following are its uses in the two basic exchanges.
Stop Price in the Stop Order in Stock Trading Online
The stop price is the only component of this very basic exchange. It sets a point at which a market order is triggered to buy or sell stock to cut loss, by buying before a stock gets too high, or selling before it gets too low. It generally buys above the market, and sells below the market.
For example, suppose that an investor is following a stock which is trading at $4 per share. She could set a stop order to buy with the set price of $5. Then, if the value of the security should reach the stop price of $5, a market order to buy will act, and shares will be taken on as soon as possible.
A sell unloads stock to cut loss. Suppose that a trader has shares of a stock, presently trading at $10 per share. He could set a sell stop-loss order with a stop price of $9, and shares will be unloaded as soon as possible once (if) the security’s value drops to the stop.
Stop-Limit Order in Stock Trading Online
The stop-limit order is exactly the same as the limit trade, except it limits, using the limit price component, what is too much to spend on a buy, and what is too little in earnings in selling stock. Returning to the above buy example where the stock trades at $4, the investor could set a buy stop-limit order with a stop price of $5 and a limit price of $5.50. Shares will be taken on once the stop price has been hit, only if the limit is not exceeded (and they are bought at or under $5.50 per share).
In the above sell example with the stock trading at $10, the trader could set a sell stop-limit order with the stop price at $9 and a limit at $8.75. Shares will only be unloaded once the stop has been hit, only if they can be sold at or above the limit (for $8.75 or more per share).
The stop price in online stock trading is a valuable investing tool. It lets investor buy before a stock gets too high, or sell before it drops too low in its trading value.
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