Stop order: What is a stop order, and how is it used?

 Here is the article. 

What is a stop order, and how is it used?

A stop order is an order to buy or sell a stock at the market price once the stock has traded at or through a specified price (the “stop price”). If the stock reaches the stop price, the order becomes a market order and is filled at the next available market price. If the stock fails to reach the stop price, the order is not executed.

A stop order may be appropriate in these scenarios:

• When a stock you own has risen and you want to attempt to protect your gain should it begin to fall
• When you want to buy a stock as it breaks out above a certain level, believing that it will continue to rise

A sell stop order is sometimes referred to as a “stop-loss” order because it can be used to help protect an unrealized gain or seek to minimize a loss. A sell stop order is entered at a stop price below the current market price; if the stock drops to the stop price (or trades below it), the stop order to sell is triggered and becomes a market order to be executed at the market’s current price. This sell stop order is not guaranteed to execute near your stop price. 

A stop order may also be used to buy. A buy stop order is entered at a stop price above the current market price (in essence “stopping” the stock from getting away from you as it rises).

Let’s revisit our previous example, but look at the potential impacts of using a stop order to buy and a stop order to sell—with the stop prices the same as the limit prices previously used.

While the two graphs may look similar, note that the position of the red and green arrows is reversed: the stop order to sell would trigger when the stock price hits $133 (or below), and be executed as a market order at the current price. So if the stock were to fall further after hitting the stop price, it’s possible that the order could be executed at a price that’s lower than the stop price. Conversely, for the stop order to buy, once the stop price of $142 is reached, the order could be executed at a higher price. 

Actionable Items

Every time I like to make a purchase, I also should set stop loss order in case there is market corrections. So I can protect myself with a big loss. I purchased Intc stock 200 shares at price of $52.50, and then the price went down at $50.00 dollars. It is better for me to set stop price at $51.90 dollars.