A Sell Short Stop Order is an order to Sell Short a stock
at a price below the current market price. Once a stock's
price trades at or below the price you have specified, it
becomes a Market
Order to sell short.
Please note that is very similar to a Sell
Stop Order, the only difference being a Sell Short Stop
Order is used to ENTER a new short position, while a Sell
Stop Order is used to EXIT an existing long position.
Example: Suppose you want to Sell Short 100 shares
of Xerox Corp (XRX) if the price falls $2 more, since you
believe that this will trigger the beginning of a much larger
decline. Assume XRX is currently trading at $15 per share.
You place a Sell Short Stop Order @ $13 on XRX.
Suppose XRX then proceeds to trade down
to $13. At that time, your order would then become a Market
Order to Sell Short and your order would be filled at the
next best available price.
The main benefit of a Sell Short Stop Order is that you
will only sell short IF price is showing downward momentum,
which is what you want to see when Selling Short. Sell
Short Stop Orders are great for entering new short positions
in stocks that break below levels of support.
But, if the stock price reaches your stop price, the stock
may change direction to the upside and you may have just
sold short at its low. Also, once your stop price is reached
and your order becomes a Market Order to Sell Short, you
may be filled at a price higher or lower than your stop