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Stock Exchange: Order Supplements when Selling Securities

Info by Never Rich Enough | 01/06/2012 at 18:33

When selling securities, you are adding an order supplement to your order characterizing more precisely the conditions under which the order should be executed.

We distinguish the following types of sales orders:

  • Market Order: Market Order is an unlimited trading option. This means that no limit is specified that makes the sale in some way dependent on the current market value. Instead, with "Market Order" it is tried to sell the securities immediately for the best price that is possible on the market at the moment. So, sometimes, by using this order type, it can happen, that your securities are sold for a lower price than the current market price, because otherwise there is no suitable offer on the market to sell the shares.
  • Limit Order: If you specify a limited sell order, you have to define together with your order a price that should be reached at least to make a sale take place. The advantage of this order type is that if you sell the shares, actually you get the money, that you want. The disadvantage may be, however, that no one is there who wants to have the papers for this price, so that you cannot sell your papers at all.
  • Stop Loss: Together with a Stop Loss order, a price has to be submitted. If the market price of the security you want to sell falls below this defined price, a sell order of the security is triggered automatically. So, the sense of Stop Loss orders is to limit losses. If we do not observe the price all the time, we can specify a "stop loss" and when the stock price falls below this price, our paper is sold automatically. For example, if we have purchased some shares for 15 € and the shares are currently at 20 €, we can set a stop loss of 18 €, so that the market value cannot slip unnoticed under 15 € again without us noticing it. Of course, stop loss trading options have some pitfalls. If the price falls down very quickly, in the above example, we cannot sell the papers for our desired 18 €, so that under circumstances, we are still having a loss, for example because the market price falls down to 12 € or something like that. Also, it can happen quickly, especially when trading rapidly fluctuating values, that a spike in the price leads to a stop loss execution, although the price will reach the higher level in the next moment again. In other words: You have to be aware of what you are doing and it plays a great role where to place the stop loss exactly. Within Stop Loss orders, we can still distinguish between unlimited and limited stopp loss orders. Unlimited stop loss orders lead to a Market Order sale, limited stop loss orders to a limited sale - again, both types have their advantages and disadvantages.
  • Trailing Stop Loss: The "Trailing Stop Loss" order is a dynamic variant of Stop Loss. Depending on the current market price, the Stop Loss limit will be adjusted (in percentage or absolute), so that automatically when prices rise, also the stop loss limit is increased. Once again, however, if the price begins to drop and falls under the last limit, the sell order will be executed.

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