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| *Ostroff, Fair and Company>>>Investing |
Is there REALLY a DIFFERENCE between limit and stop order? |
both allow u to buy/sell when a stock reach a particular prices. so what is really the difference? and no dont give me a defintion between these two..i already know the meaning. give me a like a stock price example etc. or something...otherewise..dont bother trying to answer. thx in advance. There sure is a big difference... There are SELL stop orders and stop limit orders, and there are BUY limit orders. (There are also a multitude of other types of orders, like trailing stops, conditional order, one cancels the other (OCO), one triggers the other (OTO)), but for simplicity we'll just stick to the above. If you set a SELL stop limit order at $10, then you're saying that if the stock drops below $10, then sell (but I want to get at least $10). If the stock gaps down, you may not be able to sell, if it falls thru your limit order of 10. If you put a stop order to sell, and the price drops below 10 it will sell, but you may not necessarily get 10 for it, you may only get 9, or 8, or 7 depending on the spreads and how many people are buying. A BUY limit works in reverse. You want to buy the stock, say that is now trading at $10, but you only want to pay $9.50. You put a buy limit at 9.50 and if the stock comes down at 9.50 you may or may not get it, depending on how may market orders there are at $9.50. /// There is a big difference. A limit order is used when you want to buy a stock at a particular price or better. It sets a limit on the amount you are willing to pay. A stop order is used when you own a stock that you wish to sell if the price drops below a certain price. I suppose it could also be used on a short sale also. I do not know for certain, but I do not see why not. There are actually two major kinds of stop orders. 1. a regular stop order that says to sell if the price of the stock drops to a certain price say for example $35.85 (Do not ever put in a stop at a major level as $35.00 for example because there might be a lot of other stop orders at such a price and the market maker might drop the price to that level to clean out the stops). 2. a trailing stop order that is set at a certain level below the high price of the stock. As the stock advances in price so does the stop. It can be set at either a fixed amount for a percentage amount. Maybe even other ways that I am not familiar with. For example 17% below the high, or maybe $ 5.31 below the high. Again avoid major amounts such as 10% or $5.00. Even I want to know the answer to this question, And I thought I understood it until the 2nd guy came in and confused me. Ok, here's the scoop. CROX is at $90. I have a limit order to sell at $92. If it gets to $92 or higher, I'll get my order filled. That's one of the most common uses for a limit order, to sell a stock/option at a price you designate. Now, on a stop order, there are two types, stop loss (profit protection) orders and stop limit orders. On CROX, I have a stop order for $84. If the stock drops to $84 or below, an order will go through at that time to sell my stock immediately at the market (bid) price, whether it was $84 or $83.95, or lower. Now, if instead I had a stop limit order (another alternative), for $84 and the stock was dropping say to $84.10, then suddenly jumped down to $83.80, my order would go in, but instead of selling immediately at market (to protect and get rid of my position), my order would then be a limit order for $84 (meaning I would only sell if the bid was $84 or more). However, since the stock is now at $83.80, my order would just sit there while the stock continued to slide. On a big drop, I could get seriously burned. Only if/when the bid got back up to $84, would I "finally" get out of the position if I used a stop limit order. Make sense? There are other types of orders too you can use (buy stops, trailing stops, etc), but I wanted to answer your question first. If you have other questions, please just let me know. Hope that helps! |
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