Stop vs Limit Order on Long Stock to Limit Loss

X

xBoba

Hi Guys,

I'd like to know what everyone's preference is in regards to using stop and limit orders to limit loss on a long stock should it go down.

To me, it seems like Limit order would always be the best option regardless, because in a stop order, it would get filled at the current market price, whereas limit orders would get filled at the exact price you set it at.

If I anticipate Apple (current at $100.75) to go down to $95 tomorrow, I could create a limit order to sell at $95. Why would I use Stop order?
 
To buy a Put is an option too.
However it's stop market vs stop limit.
You can't open a sell limit below the spread.

You would use a stop market to get filled.
Stop limit can stay active if it's a failing knife.

Isn't it ?

I personally use both.
Depending on the situation.
I won't experience any slippage,
Since the bids & asks are liquide enough.
Therefore I'll get filled at my desired price level.

If you anticipate APPL to depreciate,
You better reverse your position,
and open a buy limit at 95$.
 
Last edited:
You can't send a pure limit order. A stop-limit will send a limit order after market reaches stop price but the risk is that if the market moves fast, it will be left unfilled IF your limit is too tight.

Stop orders are marketable meaning after your stop price is reached, it's sent as a market order and you're at the mercy of the current bid/ask. In situations where you absolutely want to be in the market despite slippage, these orders are great.
 
xBoba said:
If I anticipate Apple (current at $100.75) to go down to $95 tomorrow, I could create a limit order to sell at $95. Why would I use Stop order?
More...

No, you sell Apple market and buy back at $95.

Anyway, there are some basic rules.
- Use physical stop orders for futures, avoid them if possible for equities. Use mental stops.
- You need to know where is your stop BEFORE any order.
- If you do the job properly, your stop should be rarely reached, and if so, you would be more than happy being out, even if you lost some pennies. For example, better get out @94.90 or 94.80 rather than 95 if Apple should tumble to 90.

CM
 
You must log in or register to reply here.
Back
Top