July 4, 2021
Introduction
I have some issues to manage risk to invest $10,000 dollars on GRAY stock. It is very risky stock and the price can drop easily 10%. I like the challenge, but I have to learn more how to avoid big losses.
Limit Order vs. Stop Order: What's the Difference?
Limit Orders vs. Stop Orders: An Overview
Different types of orders allow you to be more specific about how you'd like your broker to fill your trades. When you place a limit order or stop order, you tell your broker you don't want the market price (the current price at which a stock is trading); instead, you want your order to be executed once the stock price matches a price that you specify.
There are two primary differences between limit and stop orders. The first is that a limit order uses a price to designate the least acceptable amount for the transaction to take place, while a stop uses a price to merely trigger an actual order once the specified price has been traded. The second is that a limit order can be seen by the market; a stop order can't until it is triggered.
For example, if you want to buy an $80 stock at $79 per share, then your limit order can be seen by the market and filled when sellers are willing to meet that price. A stop order will not be seen by the market and will only be triggered once the stop price has been met or exceeded.
In a regular stop order, if the price triggers the stop, a market order will be entered. If the order is a stop-limit, then a limit order will be placed conditional on the stop price being triggered. Thus, a stop-limit order will require both a stop price and a limit price, which may or may not be the same.
KEY TAKEAWAYS
- A limit order is visible to the market and instructs your broker to fill your buy or sell order at a specific price or better.
- A stop order isn't visible to the market and will activate a market order once a stop price has been met.
- A stop order avoids the risks of no fills or partial fills, but because it is a market order, you may have your order filled at a price much worse than what you were expecting.
Limit Orders
A limit order is an order to buy or sell a stock for a specific price.1 For example, if you wanted to purchase shares of a $100 stock at $100 or less, you can set a limit order that won't be filled unless the price you specified becomes available. However, you cannot set a plain limit order to buy a stock above the market price because a better price is already available.
Similarly, you can set a limit order to sell a stock once a specific price is available. Imagine that you own stock worth $75 per share and you want to sell if the price gets to $80 per share. A limit order can be set at $80 that will only be filled at that price or better. You cannot set a limit order to sell below the current market price because there are better prices available.
In order to trigger a stop order only when a valid quoted price in the market has been met, brokers add the term "stop on quote" to their order types.
Stop Orders
Stop orders come in a few different variations, but they are all effectively conditional based on a price that is not yet available in the market when the order is originally placed. Once the future price is available, a stop order will be triggered, but depending on its type, the broker will execute them differently.1
Many brokers now add the term "stop on quote" to their order types to make it clear that the stop order will only be triggered once a valid quoted price in the market has been met. For example, if you set a stop order with a stop price of $100, it will be triggered only if a valid quote at $100 or better is met.
A normal stop order will turn into a traditional market order once your stop price is met or exceeded. A stop order can be set as an entry order as well. If you wanted to open a position once the price of a stock is rising, a stop market order could be set above the current market price, which turns into a regular market order once your stop price has been met.2
In order to trigger a stop order only when a valid quoted price in the market has been met, brokers add the term "stop on quote" to their order types.
Stop-Limit Orders
A stop-limit order consists of two prices: a stop price and a limit price. This order type can be used to activate a limit order to buy or sell a security once a specific stop price has been met.1 For example, imagine you purchase shares at $100 and expect the stock to rise. You could place a stop-limit order to sell the shares if your forecast was wrong.
$90 stop price | $90.50 the limit price | what if $89 per share < $90 stop price | What condition to activate the order | Confusing for beginner
If you set the stop price at $90 and the limit price at $90.50, the order will be activated if the stock trades at $90 or worse. However, a limit order will be filled only if the limit price you selected is available in the market. If the stock drops overnight to $89 per share, that is below your stop price so that the order will be activated, but it will not be filled immediately because there are no buyers at your limit price of $90.50 per share. The stop price and the limit price can be the same in this order scenario.
Risks | no fills or partial fills | Stop-limit order | My study - 1:23 AM
A stop-limit order has two primary risks: no fills or partial fills. It is possible for your stop price to be triggered and your limit price to remain unavailable. If you used a stop-limit order as a stop loss to exit a long position once the stock started to drop, it might not close your trade.
Even if the limit price is available after a stop price has been triggered, your entire order may not be executed if there wasn't enough liquidity at that price. For example, if you wanted to sell 500 shares at a limit price of $75, but only 300 were filled, then you may suffer further losses on the remaining 200 shares.
A stop order avoids the risks of no fills or partial fills, but because it is a market order, you may have your order filled at a price much worse than what you were expecting. For example, imagine that you have set a stop order at $70 on a stock that you bought for $75 per share.
The company reports earnings after the market closes and opens the next day at $60 per share after disappointing investors. Your order will be activated, and you could be out of the trade at $60, far below your stop price of $70.
Case study | Gray stock | My loss over $1200 dollars in two days | Apply stop limit order
My goal is to learn how to manage the position with minimum time. I like to avoid loss over $1200 dollars in less than two days. What should I do? The stock went down last two business days so quickly.
Total loss from June 30 to July 4 is $1248.27. I should learn something here.
#stockHomeWork #JimCramer #CNBCInvestingClub #StopLoss #StopLimit #RiskManagment #2021 #Investing
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再补了[Facepalm]
