What's The Difference Between A Stop And A Limit Order?
sometimes investors want to buy or sell a stock, but only if the price moves in a certain direction first. stop orders and limit orders direct the broker to make a transaction once a trigger price has been reached. for example, say ? bought a stock at $20 and quickly drop to $18. now she is going on vacation and won't be able to watch the market. to protect herself from a large loss, she places a sell stop order, sometimes referred to as a stop loss order, with a broker at $15. if the stock hits $15, the stop order becomes ?, broker will fill at the next available price. one of the drawbacks of a stop order is that her broker may execute the stock transaction at a less favorable price than the trigger. say ? stock fell to $15, activating market order, but immediately plunge to $13. ? market order would fill at the price of $13 and causes $7 per share loss instead of $5 loss. ? stop orders are typically used to protect against losses, investors use limit orders when they are attempting to maximize profits. limit orders allow the investor to buy or sell ? stock at a specific price or better. therefore, a sell limit order is a ? the current market price just the opposite ? sell stop order. if ? bought her stock at $20 and started rising in value, she may decide to put a sell limit order at $25 to ? in again. brokers often charge a premium for this privilege. one advantage of limit orders is that they only execute at a predetermined price or better. this can also be a shortcoming, if they don't stay in the desired range. once trigger the transaction simply doesn't take place.