Stop loss and limit orders

A Stop loss and limit orders are orders that attempt to execute (meaning become a market order) when a certain price threshold has been reached. Limit and stop orders are mirrors of each other; they have the same mechanics, but have opposite triggers. When you create a limit or stop loss, you choose a ticker symbol and quantity, just like a market order, but you also choose your target price. The target price is the price that triggers the limit or stop. Setting a target price does not guarantee that you will get that price, it just means that a market order will be created at that point. If there is not enough volume in the market to fill your order, it may still not be executed.

Limit

A limit order will set the highest price I am willing to buy (cover) at or the lowest price I am willing to sell (short) at.

Example

Let’s say Investor A costs 300 kroner, but you think it’s too expensive and want to buy it when it falls. By setting a limit order at a target price of SEK 280, we can wait until the price reaches it without having to sit in front of a screen. As long as the price is higher than SEK 280, it will not run. As soon as the price drops to 280 crowns, your limit order becomes a market order filling 280 crowns. Here’s a chart showing how a limit order works, showing a stock price over the course of a day:

stop

A stop order will establish the lowest price I am willing to sell, or short a stock. It can also mean the highest price I am willing to buy or cover for.
Example
Let’s say you own Volvo shares (VOLV B) which you bought for 250 SEK. If the current price is 310 SEK, you want to continue holding the stock if the value continues to rise, but you want to protect the gains you made. You can place a Stop Sell order with a target price of 300 SEK, so if the price of the share falls to just 300, you will be protected from further losses. If the value continues to rise, you will continue to hold the share. Uses Stop loss and limit orders help protect you from loss, or help you take advantage of a profit, as well as giving you access to more advanced trading strategies. One of the main advantages of stop and limit orders is that they can be set and exited with Good Til Cancel (GTC) order expiry, and therefore you don’t have to watch the share price constantly to get well-timed trades. If the prices change above your limits, the orders will be executed automatically, giving you less to worry about. This also means you can build a much broader portfolio. If you don’t have to constantly look at the price of every single one of your holdings and watchlists because you’ve already set up limit and stop orders based on your preferences, you can have a much wider range of symbols on your radar. Another important use is that you can remove some of the emotion from your trading. By setting limit orders and stop losses in advance, you won’t have to panic sell or panic buy to take advantage of price swings; you’ll already have standing orders ready to take effect once your predetermined criteria have been met.

About the Vikingen

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