Stop Orders are used to buy or sell stocks once their market price meets their preset Stop price. When the Stop price is hit, the Stop Order becomes a Market Order and then executes at the best current price available at the time.
Investors often place Stop Orders associated with their open positions to help reduce potential losses, in case the stock moves in the wrong direction. Nevertheless, there is the risk that short-term fluctuations in a stock’s price can trigger a Stop Order resulting in a Market Order being executed.
Stop 'Buy' Orders:
They may be useful for entering the market in an upward trend at a certain target price above the current one of a given security. For example, if the current price is £40.00, and you assume the security's price will rise after reaching £42.00 you may place a Stop 'Buy' Order with the latter price as a target.
Once the current price hits the target one, the Stop Order automatically converts into a Market Order.
Here's how to set one:
- Select an instrument;
- Choose the number of shares to Buy;
- Set a Stop Price above the current one which you're willing to pay for a share;
- Review the order and confirm.
Stop 'Sell' Orders:
Are useful for reducing or avoiding losses when a certain target price below the current one of a given security is reached. For example, if the current price is £40.00, and it starts decreasing, you may place a Stop 'Sell' Order with a target price (e.g. £37.00) that you are willing to sell your shares.
Once the current price hits the target one, the Stop Order automatically converts into a Market Order.
Here's how to set one:
- Select the instrument you'd like to sell shares of;
- Set the number of shares to Sell;
- Set a Stop Price below the current one which you're willing to sell your shares;
- Review the order and confirm.
* A Stop Order will remain pending and the funds needed for its execution - blocked, until its target price is reached. It cannot be modified unless cancelled and replaced by a new order of the same or a different type.