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