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Author: ccsmith Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2209  
Subject: Re: define Stop, Stop limits, etc. Date: 4/22/1999 11:09 AM
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Please explain these terms. We have recently signed on with a internet brokerage and these terms are on the options. Can anyone out there explain to two new traders on the market???????

Not to worry, these are just options to turn a normal Market Order into something with a few strings attached. Attend:

Market Orders are orders to buy or sell which are placed in the execution queue immediately upon receipt. They will be executed as long as there are shares available to be bought or sold, at any price, when the order hits the front of the line. Trades are executed at the price prevailing at the time of execution.

Limit Orders are orders to buy or sell at a specified price (the Limit Price) or better. The minimum/maximum price a sell/buy order will be executed at is guaranteed, but there is no quarantee that price will ever be reached, so there is no guarantee the the trade will ever take place.

Stop Orders are sort of like Market Orders with fuses. These orders sit idle until a specified price (the Stop Price) is reached. At that point they become normal Market Orders and are placed in the queue for execution. If the Stop Price is never reached the order never gets executed. Note also that the price may change while the order is in the queue, between the time the Stop Price is hit and the order execution takes place.

There are also a couple hybrids:

A Stop Limit Order is essentially a combination of a Stop Order and a Limit Order. It sits idle until the Stop Price is hit, then becomes a Limit Order for the purachase/sale of shares at a specified price or better. These orders will only be executed if conditions for both the Stop and Limit are reached.

A Stop Loss Order is simply a Stop Limit Order where the Stop Price is placed below the current market value of the security. It will sit idle until until a trade takes place at the Stop Price, at that point it becomes a Limit Order.

Hope this helps.

Regards,

Creighton
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