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For the purposes of this question, I own 100 shares of XYZ at $100.00 a share. I'm just now getting into order types in my research ...

I know in some cases I can utilize "one order cancels the other" with some brokerages and I tend to get a little confused over limit and stop limit orders.

I would like to either sell XYZ if it drops to 90.00 OR (if rising) a 5% trailing stop.

I guess I'm a little confused on the terminology. Can anyone shed some light? Janie

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2 Answers 2

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A limit order is simply an order to buy at a maximum price or sell at a minimum price. For example, if the price is $100 and you want to sell if the price rises to $110, then you can simply put a limit order to sell at $110. The order will be placed in the market and when the price reaches $110 your order will be executed. If the price gaps at the open to $111, then you would end up selling for $111. In other words you will get a minimum of $110 per share.

A stop limit order is where you put a stop loss order, which when it gets triggered, will place a limit order in the market for you. For example, you want to limit your losses by placing a stop loss order if the price drops to $90. If you chose a market order with your stop loss as soon as the price hits $90 your stop loss would be triggered and the shares would sell at the next available price, usually at $90, but could be less if the market gaps down past $90. If on the other hand you placed a limit order at $89.50 with your stop loss, when the stop loss order gets triggered at $90 your limit order will be placed into the market to sell at $89.50. So you would get a minimum of $89.50 per share, however, if the market gaps down below $89.50 your order will be placed onto the market but it won't sell, unless the price goes back to or above $89.50.

Hope this helps.

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AWESOME! This was exactly what I needed Victor. Thank you so much! –  Jane WIlkie Aug 10 '12 at 16:08

The question mentions a trailing stop. A trailing stop is a type of stop loss order. It allows you to protect your profit on the stock, while "keeping you in the stock". A trailing stop is specified as a percentage of market price e.g. you might want to set a trailing stop at 5%, or 10% below the market price.

A trailing stop goes up along with the market price, but if the market price drops it doesn't move down too. The idea is that it is there to "catch" your profit, if the market suddenly moves quickly against you. There is a nice explanation of how that works in the section titled Trailing Stops here. (The URL for the page, "Tailing Stops" is misleading, and a typo, I suspect.)

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So if you put in a 10% trailing stop on a stock trading at $50, then the stock's price climbs to $100, the trailing stop will still only kick in if the stock drops to $45 ($50-10%)? –  Jeremy Aug 31 '12 at 20:45
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@Jeremy, no if the stock climes to $100 then the trailing stop will move to $90, ($100-10%). It is 10% from the last highest price. As the price moves up the trailing stop moves up, but if the price starts moving down the trailing stop will not move down, it will remain at $90, and if the price hits $90 you will be stopped out. –  Victor Sep 1 '12 at 8:37
    
Great, thanks for the clarification! –  Jeremy Sep 4 '12 at 15:16
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@Jeremy Sorry it took me awhile to get back! I edited my answer to explain, with a little more detail. Victor's comment was very good, and accurate. –  Ellie Kesselman Sep 8 '12 at 7:39

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