Stopped Order
A stopped order, also known as a trailing stop-loss order, is a type of conditional order in which you specify a price level at which you want to sell a security if the price reaches that level. It’s a popular order type among day traders and investors because it allows you to lock in profits while still leaving the possibility of potential further gains.
Key features:
- Specify a stop-loss price: This is the price level at which your order to sell will execute.
- Trail the stop-loss as the market moves: You can adjust the stop-loss price as the market moves in your favor, locking in profits along the way.
- Potential for greater loss: Unlike a regular stop-loss order, a stopped order can result in a loss if the price falls below your stop-loss price.
- Can be used with any security: You can use stopped orders on stocks, options, futures, and other securities.
Here’s an example:
You buy a stock for $100 and set a stopped-loss order at $90. If the price of the stock drops to $90, your stop-loss order will execute and you will sell the stock at that price. However, if the price of the stock rises above $90, you can adjust your stop-loss order to a higher price, locking in your potential profits.
Benefits:
- Potential for greater profit: Can lock in profits while still leaving room for potential further gains.
- Reduces potential losses: Can limit potential losses by exiting the position if the price reaches your stop-loss price.
- Flexibility: Can be adjusted as the market moves, allowing you to lock in profits and manage risk.
Risks:
- Potential for larger loss: Can result in a loss if the price falls below your stop-loss price.
- Complexity: Can be more complex to manage than a regular stop-loss order, especially if you frequently adjust it.
Overall:
Stopped orders can be a valuable tool for traders and investors who want to lock in profits while still leaving the possibility of potential further gains. However, it’s important to be aware of the potential risks before using this type of order.
