Stop and Limit prices

Frinkenstein · #1 10-19-2007, 01:05 PM

I just bought my first stock...

I wish to put in a stop limit order just in case it tanks...

So I need to enter a limit price and a stop price. If things go south and I want to sell at 62.05, do I set both the limit price and stop price to that number? Or do the limit and stop prices need to be different?

Thanks in advance for the help.

polkaface · #2 10-19-2007, 02:42 PM

I am pretty sure you want to set a stop order only (as a loss limiting function). Once the stop threshold is crossed it will turn into a market order to get rid of it as fast as you can.

From the FOOL...

For example, if you bought a stock at $20 that is now trading at $50 and you want to sell it if it drops to $40 (locking in a 100% gain), there's a certain kind of order you may want to place -- either a "stop-loss" or "stop-limit" order. The "stop" activates the order if shares sink to a certain price ($40 in your example). The stop-loss order immediately sells the shares at the best price it can, while the stop-limit will sell only if the shares are at $40 or above.

Here are the risks: If, perhaps because of bad news, the shares suddenly fall below $40 overnight and don't rise above that, the stop-loss will sell your shares for less than $40, while the stop-limit order won't sell the shares at all.

pig4bill · #3 10-19-2007, 04:41 PM

The best method to use depends on how the stock trades. If it's thin and trades in spurts, then just a stop is probably safest. If it makes "orderly" moves where lots of shares jiggle up and down by a few cents as it slides or climbs, a stop limit is probably best.

Note that most stops are "off" pre and post market, so a gap move that triggers your stop at the open may be far away from your limit, if you set one.

Tater10 · #4 10-19-2007, 05:06 PM

You can make a the limit price anything below the stop price.

Example: You have a 62.05 stop with a 61.80 limit. If the stock hits 62.05 (or lower), you will sell down to 61.80 immediately. If not, you are offered at 61.80. This obviously will not protect you if the market gaps lower to 57 on the open for example.