How do stops and limits work with short-selling?

Question

My understanding of stock market orders right now is illustrated as shown: stock market orders

However, if the price of a stock was trading at 22.00 and I wanted to enter a short position at a trigger price of 22.50 due to resistance being present at that price level, for instance, would I input a short-stop order or a short-limit order? Conversely, if I wanted to protect my short position under the same idea as a stop-loss order for a long position, would I use a buy-to-cover stop order or a buy-to-cover limit order?

Thanks.

Answer 1

If the price was currently at $22.00 and you wanted to open a short position when and if the price hits $22.50, then you would place a sell stop-limit order at $22.50.

If you wanted to open a short position at say $21.50 you would place a sell stop market order at $21.50.

Once your order has been triggered, you would protect your position by placing a buy stop market order. You would usually place this stop-loss order at the same time you're placing the short sell order as part of the same order.

Answer 2

A stop order is used to close out of an existing position. A limit order is used to open a position after some price threshold has been broken.

So you would use a sell-limit order to open the short position (or short-limit depending on what terminology your broker uses) once the price goes above 22.50, and a buy-stop order to cover your short position if the price goes above the limit price.