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Pastimes : Learning To Invest Correctly - A Shared Experience

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To: Fredman who wrote (245)	9/16/1998 12:44:00 PM
From: Nazbuster	Read Replies (2) of 253

For a normal long trade, you buy low, put in your target sell limit order (no stop). It will trade at that price or better. In a fast moving market, unless the money-grabbing MMs buy it from you at $5.00 and sell it to the next bidder at $5.50, a good broker gets you best price. Since you were willing to sell at $5.00, your broker knows you'd be willing to sell at $5.50 and executes at best price. Think of STOPs as a request NOT to trade until the price reaches your limit, then to trade at market, when your price would trade instantly without the STOP. For example, if are already long a stock at $5.00 which is currently Bid at $5.00, and you want to minimize your losses, you might put a sell order in at $4.75 STOP. If you forget the STOP and the stock is trading at $5.00, you are saying that you are willing to sell at $4.75 (UNDER the current Bid) and someone surely will take you up on the offer. We've all done it by accident. The STOP says to sell if the price DROPS to $4.75. You wouldn't need a STOP to sell above your purchase price, only to protect against losses.

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