| Guide to Online Investing |
Using the Stop-Limit Order |
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Although it is available from all brokers, most online investors do not know how to use this important type of order. Basically, a stop-limit order is a way to conserve your gains and preserve your capital. Let’s say you bought a stock for $20. If you don’t want to have a significant loss on this security, you would want to place an order to sell this stock at a price slightly below your purchase price, maybe $18. This is where investors should use the stop-limit order, but most do not because they are not aware of how it works. When selling, the stop-limit order is placed at a price below the current market value. Once the security goes beneath the limit price, the order becomes a regular sell order with the mentioned limit price. An investor can also use the stop-limit order to lock in gains. For example, if the stock rose to $30, an investor can put in a stop-limit order at $28 and secure an $8 profit. A stop order is similar to a stop-limit order. When selling, a price below the current market price is set as the trigger price. However, with a normal stop order, the stock will be sold at whatever price below the trigger price is available. A stop-limit order is safer than a regular stop order. During the bull market of the late 1990s, investors could have saved themselves large amounts of capital had they used stop-limit orders. Had they placed a stop-limit on an internet stock that skyrocketed to $300, they would have had a hefty profit instead of holding onto a stock that dropped to become a penny-stock. [email protected] |