Stop vs Stop Limit
In the fast-paced world of the stock market, a stop and a stop limit are two types of orders often used by investors to prevent important loses in buying and selling their shares. It can also be a method to guarantee a profit if the investor wants to sell. Generally, an investor places these orders with the help of their respective brokers.
The stop order is the short term for a stop loss order. This is basic move in the stock market where it works as a preventive and protective measure against potential losses in buying or selling stocks or securities. It is also useful in guaranteeing a substantial amount of profit. It is executed when a security reaches a particular price. The stop order allows a certain price to initiate a buy or sell action. It is used to sell shares the moment the prices fall below a certain price and buying when the security’s value is too high.
The stop order also allows the investor to buy or sell at the current market price once the stop order has passed. The order can guarantee the execution but not the price. The stop order has two types – the buy stop order and the sell stop order. The buy stop order price limit is often placed above the current market price on a stock which is not yet purchased. After the stock reaches a specific amount, it can be purchased by the investor.
On the other hand, the sell stop order is set below the current market price and is used when the stock’s price drops at a moment’s notice or at an alarming rate. The stop order turns into a market order when the stock’s stop price has been reached.
On the other side of the coin, the stop-limit order is a combination of a stop order and a limit order. It is a basic stop order with an added component in preventing risk in trading.
Like the stop order, it can be used to prevent losses from buying or selling a stock. It can be used as a tool for an investor who has no time to monitor the fluctuations in price in everyday trading. Also, as an extension of the limit order, there is a maximum or minimum amount or price at which an investor is willing to buy or sell stocks.
The stop-limit order is the combination of a stop order and a limit order. It has more precision than a stop order that prevents an investor from overspending or the underselling of a stock. The stop-limit order becomes a limit order when the stop price reaches the pre-determined stop price. The stop-limit order involves two prices – the limit price and the stop price. It also has two types – the buy stop limit order and the sell stop limit order. Both types share similar characteristics with the buy stop and sell stop order in placement of the price.
The stop-limit order allows the investor to buy or sell at a specified price which reflects the chance that the order may not filled. In brief, this type of order can guarantee the price but not the execution process.
Summary:
1.Both stop orders and stop-limit orders have three similarities. Both orders play a part when a certain price triggers the buying or selling of a stock. Both are preventive measures for losses while they also can be used to gain a profit. 2.Lastly, the two orders are great tools to use when the investor cannot monitor the market or stock situation on a regular basis.
3.The stop order is considered as the simpler of the two concepts while the stop-limit order, due to its extra component, is much more complicated.
4.When a certain price is reached, the stop order transforms into a market order while the stop-limit order becomes a limit order.
5.In the process of the stop order, there is a guarantee on the execution but not on the process. The reverse is true for the stop limit order.
6.The stop limit order involves two prices – the limit price and the stop price. Meanwhile, the stop order only involves the stop price.