You can lose money. Past results are not necessarily indicative of future results.įutures and forex trading is not appropriate for everyone. While you can use a "stop" order to either enter or exit a trade, a "stop loss" is a special kind of stop order which is designed to exit a trade at a pre-determined loss level.Ĭollective2 LLC is a member of the National Futures Association (NFA).Īll results are hypothetical. To summarize: A "stop loss" order is a special kind of stop order. This would be a stop-loss order, and to place it at Collective2, you would issue: Sell To Close Stop 60. Conversely, once you bought the stock at $100, you might decide that you will sell it if it ever goes below $60. For example, if IBM is trading at $80 dollars, and you want to go long when it reaches $100, you would enter a BUY STOP $100. Remember that a "stop order" can be used to enter a trade, too. Not all stop orders, however, are "stop losses." You might buy IBM when it is at approximately $80 dollars, and place a stop loss order to Sell To Close IBM at stop $60 - in other words, to sell IBM if the stock ever goes below $60 dollars. It is an exit order, or, in Collective2-speak, it is a "to close" order. A "stop loss" is an order you place at a broker which is designed to limit your loss. ![]() These terms are related, but - if we want to be very exact - they do not mean the same thing. ![]() ![]() What is the difference between a "stop loss" and a "stop order"? In contrast, when buying, unfavorable means above our target. Notice how when we are selling, unfavorable prices mean a price below our target. Use a stop order, because you are telling the broker to wait until the market becomes even more unfavorable than 70. You want to SELL when it crosses below 70. Use a limit order, because you are insisting on selling at 90 or better. You want to SELL when it crosses above 90. Let's look at two more examples to demonstrate this further:Įxample 3. When we sell, we want prices to be as high as they can be. Notice in these first two examples that we use Limit to mean "this price or better" and Stop to mean "this price or worse." How do we determine what is "better" and what is "worse?" When we buy, we want prices to be as low as they can be. Use a stop order, because you are telling the broker to wait until market becomes even more unfavorable than 90. You want to BUY when it crosses ABOVE 90. Use a limit order, because you are insisting on buying at 70 or better. You want to BUY when it crosses BELOW 70. Each example assumes you are interested in trading IBM, and that IBM is currently trading at around $80 per share.Įxample 1. More on this soon.įirst, let's look at four examples. Please do not confuse a "stop order" with a "stop loss" - these terms are related, but not identical. When you place a Stop Order, you are telling your broker to wait until the market becomes less favorable than your price. When you place a Limit Order, you are telling your broker to demand a certain price or better. In any case, here's how the terms work, and what they mean. The exception seems to be Forex traders, since Forex trading platforms try to 'hide' these terms from their users, to keep trading simple. ![]() Most people who have previously traded with real brokers know about limits and stops. Please do not get angry at Collective2 for "making up" strange terminology. The terms "Limit Order" and "Stop Order" have been used by brokers and traders for over one hundred years. We probably get more angry and frustrated questions about Limit and Stop orders than any other subject.įirst, some background. (Or: "How do I tell the strategy to buy/sell when X goes above/below.")
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