Investing in stocks and other securities is never without risk. Unforeseen economic events, geopolitical shifts and business trends can lead to unexpected gains and losses. The simple vagaries of the market are unpredictable even without explosive changes in the country and the world. This is why seasoned investors optimize the tools and strategies of trading on a regular basis.
These options pre-date online trading platforms like E-Trade. Yet the speed and convenience of doing business in the cyber-world make savvy use of timing and judgment even more crucial. Two such elements of the trader's toolbox are stop orders and limit orders.
Read More: How to Set Up E-Trade
What Is a Stop Order?
Sometimes called a stop-loss order, the stop order directs the broker to purchase or sell a stock when it climbs or sinks to a designated price. Once that price is attained, the stop order converts to a market order, essentially executing the trade at the best available price.
So, with a given market price, a buy stop order makes a purchase at a higher price and a sell stop order conveys the stock at a lower price. The latter protects the investor against inordinate losses. Either execution mitigates the risk.
What Is a Limit Order?
A limit order looks like a stop order at first blush but differs in a key aspect. It is an order to buy or sell at a specified price or better. Execution of a limit order is conditioned on whether the market reaches the price for that stock. Although execution is indefinite, limit orders make sure an investor pays no more for a stock than she is prepared to pay.
On the one hand, a stop order is generated once the pre-determined price is hit. A limit order, by contrast, sets a tolerance threshold above which a purchase does not take place.
Are These Orders Ever Combined?
The stop-limit order is another important tool for those who trade stocks. Also employed to defray risk, the stop-limit order includes two defining parameters: first is the stop, or the targeted price for the trade. The other is the outside price, as far as the investor is willing to pay or receive, also known as the limit.
In addition, a stop-limit order must be executed within a set period of time. This gives the investor power over the timing of the execution but also holds the hazard of the order going un-executed if the time frame lapses, either at the end of the trading session or sometimes the next session.
How Are E-Trade Stop-Limit Orders Made?
Now affiliated with Morgan Stanley, E-Trade provides an online brokerage platform, in addition to offering other financial services, on which investors can make trades with little to no commission deductions. Once an investor has opened an account with E-Trade, he can enter stop orders, limit orders, stop-limit orders or an array of other instructions. Logging into the brokerage portal, the trader can locate the trading and portfolios link which leads to the order entry page.
At this juncture, the user selects the type of order, for example, stop-limit, and the company shares as represented by the ticker symbol. Choosing a stop-limit will give the options for a stop on quote E-Trade price and the E-Trade limit order price. Time frame alternatives are confined to the end of the current session or 60 days out.
The platform then gives the user the chance to preview her selections before actually placing the trade. Once that is done, it will show as pending in the account information.
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Adam Luehrs is a writer during the day and a voracious reader at night. He focuses mostly on finance writing and has a passion for real estate, credit card deals, and investing.