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Let's say a stock "XYZ" is currently at 100$. I put a stop loss order of 95$. I own 0 shares of XYZ currently. The market moved down under 95$. What will happen? Will the order be cancelled or will it short 1 share?

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A stop order may sometimes be called a "stop loss" order.

What happens is that when the price of the stock reaches a certain level (the stop price), the broker sends a market order to buy or sell the stock at the market price.

If you enter a stop sell order and the price reaches the stop price, the broker will enter a market order to sell the stock. If you do not have the stock, then your broker may allow you to short the stock, where you are selling stock you borrowed stock from the broker that you agree to buy back back later.

Depending on your broker and the rules around your account, you may not be able to short the stock, and therefore not able to enter a stop loss order if you do not have the stock. But if you have a margin account and your broker is able to locate the stock, then you would be able to enter such an order.

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Your broker will not allow you to enter a stop-loss on non-existing shares.
When you pick 'sell', you need to pick which of your shares, even before you can pick the order type 'stop-loss'.

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  • Some brokers do allow you to enter a sell stop on a stock in which you do not own any shares. If the stop price is hit, then you will have a short position in that stock.
    – 7529
    May 11, 2020 at 5:01

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