Info 1: sell stop definition
Info 2: how sell stop works
Info 3: sell stop vs buy stop
Info 4: example of sell stop
Opening information:
Sell stop breaks into two words sell and stop, sell means give something, and stop means place to end work.
Sell stop means to give something at a certain end, so now let’s have a look at what is a sell stop, how the sell stop works in the public market, and what is the difference between the sell stop and buy stop, finally one clear example about the sell stop.
Info 1: sell stop definition
Ms.jani is a stock and forex trader who normally diversifies his portfolio among these two varieties of Securities. She has been trading the market for the last 8 years.
When she was a beginner she normally lost hundreds and thousands of dollars in short term speculation, after three to 3 years of good understanding and education about public market trading changed her philosophy about trading in the public market.
Her stock and forex brokers offer various types of technical tools to speculate the market fluctuation. among the tools her favorite order types functioned, tools helped her to open the short position whenever the securities market price fell below her market order created price.
Therefore Ms.jani didn’t need to be available in the market all the time, despite her creating a Market order to open the short position automatically when the stock or currency price arrived and fell below the market order created purchasing price. This helps the jani to not lose the entire amount even if she holds a long buy position in the market.
Here the market ordered type tool is used by Ms.jani to execute the short position order automatically when the current market price matches her short position order Created purchase price which that order tool is named as sell stop.
let’s dive in to know how the sell stop works and involved in the public market.
Info 2: how sell stop works
Sell stop doesn’t represent any of the specific fixed objects or materials instead it’s a tool Which are used to open the short sell position in any kind of Securities market.
These securities are anything stocks, bonds, commodities, Currencies, options, futures, and other debt instruments… Using any of the securities that are tradable with tools of sell stop.
Therefore when one stock or public Investor who involved in the trade and has no confidence that a certain stock will move high anymore it has a huge amount of risk in the fall of one stock share market price.
Then such a trader would most likely use the sell stop order to open the short position against the holding buy position, which that the sell stop is not an execute order, instead, it’s an order that is created to open the sell position only certain market price reaches the sell stop order requested price.
Next, the traders who guess and hope that specific security will fall over and over again in the future, to not miss the opportunity of falling price, are normally created sell stop orders to execute the short position automatically once the market price reaches the sell stop price order.
Moreover, people who trade the gold using a trading account would mostly create the order to avoid the loss on falling, where such securities are purchased under the sell stop orders.
Investors who hold the buy position with a huge loss and avoid the whole Invested amount without closing a holding position, use the sell stop to open the short position after certain limits in falling securities.
Any kind of trader would use the sell stop for different kinds of purposes, but the core and central function of such sell stop tool is to open the short position at the requested price.
Most people confuse the sell stop and buy stop so let’s jump into the key difference in it anyway.
Info 3: sell stop vs buy stop
The difference between the sell stop and buy stop is, that the sell stop refers to one kind of market order with a function of creating a new short position for the Investor automatically without any manual involved once the market price matches the sell stop price.
On the other side, the buy stop shows the opposite function of the sell stop by opening or purchasing the security at the ordered price automatically without active involvement once the market price matches the buy stop price.
To make you more clear about the sell stop let’s look at one clear example below.
Info 4: example of sell stop
Say you had created two kinds of order in the same stock H, whenever the market price matched the requested price, the requested order got executed in the real market.
One order was to purchase stock H at 132 dollars once the market reached such an amount and another order stated that open a short position once the market price reached 50 dollars, now Stock H is trading at 98 dollars.
Here the market to purchase the stock at 133 dollars is a buy stop and opening a short position at 50 dollars is sell stop order.