Sell Stop Order

A Sell Stop Order is an order to sell 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. A Sell Stop Order is also commonly referred to as a Sell Stop/Loss Order.

Please note that is very similar to a Sell Short 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 own 100 shares of Wal-Mart Stores (WMT) and you are worried that if the price falls a few more dollars that it will trigger the beginning of a much larger decline. Assume WMT is currently trading at $50 per share.

You place a Sell Stop Order @ $48 on WMT. Suppose WMT then proceeds to trade down to $48. At that time, your order would become a Market Order to sell and your order would be filled at the next best available price.

The main benefit of a Sell Stop Order is that you will sell off your stock IF the price is showing downward momentum, protecting you from steeper losses. Sell Stop Orders are great for protecting gains and preventing large losses.

But, if the stock price reaches your stop price, the stock may change direction to the upside and you may have just sold the stock at its low. Also, once your stop price is reached and your order becomes a Market Order to sell, you may be filled at a price higher or lower than your stop price.

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