Short Limit Order
A Sell Short Limit Order is an order to sell
short a specified number of shares of a stock at a designated
price or higher, at a price that is above the current market
price. The limit price that you specify is the minimum price
you are willing to accept to sell short.
Once a stock's price trades at or above the price you have
specified, you will enter a new Short position at your limit
price or higher IF the stock's price continues to trade
at or above your specified price long enough for your order
to be filled.
Example: Suppose you want to sell short 100 shares
of Cisco Systems (CSCO), and it is currently trading at
$25 per share. You would like to sell short if the stock's
price reaches $27 per share, as you feel the stock's price
is not going to go much higher than $27 and will likely
fall from there.
You place a Sell Short Limit Order @ $27 on 100
shares of CSCO. Now suppose the price trades up to $27.
As long as the price remains above $27 per share, you would
then enter a new short position at the next best available
price that is $27 per share or higher.
The main benefit of a Sell Short Limit Order is that you
may be able to enter a new short trade at or around a specific
price that is above the current market price IF the stock's
price raises to that price.
Sell Short Limit Orders are used best if you believe
a stock's price will rise, but only up to a certain price
range (resistance?) and will then fall in price from that
point, allowing you to profit from that move lower.
But, if the stock's price reaches your limit price, but
then changes direction to the downside before your order
is filled, you will NOT be entered into a new short position.
Also, if the price never reaches your limit price, you again
will not be entered into a new short position.