| Frequently Asked Questions |
Stop Orders
What is a Stop Order?What is a Hard Stop Order?When can I place a Hard Stop Order?What risks should I be aware of when using Hard Stops?What is a Trailing Stop Order?When can I place a Trailing Stop Order?What risks should I be aware of when using Trailing Stops?What is a Sell on Stop Order?Why would I place a Sell on Stop Order?What is a Buy on Stop Order?Why would I place a Buy on Stop Order?When would I specify a Stop Limit (don’t sell for less than) on my order?What happens if the price falls below my Stop Limit?What is a Stop Order?
A Stop Order is an effective tool which can assist you in managing your investment portfolio. Stop Orders can help protect your profits and guard against downside risk, even when you can’t keep an eye on the markets. We offer our clients three different types of Stop Orders: Hard Stops, Trailing Stops, Sell on Stops and Buy on Stops.
Hard Stop Orders are very similar to Limit Sell Orders. A Hard Stop Order lets you place an order to sell stock that you own at a price that is above the current market price. Much like a Limit Sell Order, with a Hard Stop Order, you select a firm or "hard" price at which you are prepared to sell your stock to lock in your gains.
The difference between a Hard Stop Order and a Limit Sell Order is the duration of the order. The Limit Sell Order has a maximum duration of 30 days, while a Hard Stop Order is good until you cancel it (Good Till Cancelled). You can set up your desired sell price (Price Limit) and not have to worry about whether you have a sell order when you are not monitoring the price of your stocks. Your Hard Stop Order will remain open until your stock is sold at your specified price, or until you cancel the order.
Hard Stop Orders are an effective tool to allow investors to take a more disciplined approach to investing. Using Hard Stop Orders, you can plan your “exit strategy” from a stock, as early as when you make your stock purchase. Take, for example, an investor whose investment strategy is to exit, or sell, when a 25% gain in share price is realized, no matter what. With this type of strategy, if stock XYZ was purchased at $20/share, this investor would want to sell when the price reaches $25.00*. Once the purchase at $20/share is confirmed, this investor would want to place a Hard Stop Order to sell stock XYZ at $25.00/share. When the stock hits this price, the order is triggered to sell and at a sell price of $25/share, the investor locks in a profit of $5/share*.
*commissions are excluded from calculations for the purposes of this example
You should be aware of a few things when using Hard Stop Orders. First, these types of orders do not protect your downside risk. If the price of your stock begins to fall and you want to sell, you may need to cancel your Hard Stop Order before placing another type of sell order (the combined number of shares for both orders can’t be more than the number of shares you own).
As well, since your order will be filled while the stock price is rising, you may leave potential gains “on the table” rather than in your pocket. When using this type of order, you must be comfortable with your pre-defined “exit strategy” to lock in potential gains that suit your individual investment objectives.
Trailing Stops are based on a more complex investing strategy. Rather than relying on a strategy that locks in your gains once the stock reaches a set price (Hard Stop), Trailing Stops allow for the potential of greater gains. A Trailing Stop Order will follow or “trail” the movement of a stock price as the price climbs. The order's sell price, or Stop Price, will be re-calculated upwards, based on your selected percentage, each time a new Closing High*** is reached. The following minimum price increases must occur from the previous Closing High for your Stop Price to be re-calculated:
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Please note: Trailing Stop Orders are only accepted on stocks valued at $5.00 or higher.
If the stock’s price falls to your order's calculated Stop Price, your order will be triggered** as a Market Order and your stock will be sold for the best available price.
Trailing Stop Orders are an effective tool to allow investors to take a more disciplined approach to investing. Using Trailing Stop Orders, you can plan your “exit strategy” from a stock, as early as when you make your stock purchase. Unlike a Hard Stop Order, you do not define a “hard” price to sell in order to realize potential gains. Your strategy is to follow or “trail” the stock’s price as it climbs. With this type of order, you want to realize your gains once the stock’s price peaks and begins to fall. By choosing the appropriate Trailing Stop parameters you may be able to realize greater gains than you would if you followed a sell strategy once a specific share price was reached.
Keep in mind that setting up a Trailing Stop Order does not guarantee that you will actually sell your stock at a price higher than you bought it. You need to be aware that there are risks associated with using Trailing Stop Orders as part of your overall investment strategy.
When your Trailing Stop Order is triggered, your order becomes a Market Order and your stock will be sold for the best available price. In volatile markets, or with volatile stocks, when your order is triggered and becomes a Market Order, the price you receive for your shares may be lower than you are prepared to accept. To limit your exposure you may want to set up a Limit Variance on your order. The Limit Variance you choose will be used to calculate a Stop Limit price. The Stop Limit is a restriction on your order which says that you will not accept a price less than the Stop Limit for your shares. Markets which permit Stop Limits include: the Toronto Stock Exchange, the New York Stock Exchange and the TSX Venture Exchange. This feature is not available for Nasdaq listed stocks.
You should also be aware that in volatile markets, or with volatile stocks, your share price may fall after your Trailing Stop Order has been placed. In certain situations, your order may be triggered before the stock price has a chance to climb back up. In this type of situation, you will likely take a loss on your transaction. Although this most certainly was not your plan, you will be protected from further losses if the stock’s price continues to fall.
A Sell on Stop Order is an order to sell a stock if its price falls to a certain pre-determined amount (Stop Price). This type of order is intended to limit losses on a stock if the price of that stock begins to fall. You can use Sell on Stop Orders to keep an eye on the market for you. In addition to setting a “Stop Price”, you can set your order to have a maximum duration of up to 30 days by selecting your desired “Good Till” date.
Sell on Stop Orders are very similar to Limit Orders with one key difference: when the marketplace reaches your Stop Price, the Sell on Stop Order becomes a Market Order** which will be filled on a best efforts basis at the best available price. Limit orders, on the other hand, set a specific price or better at which to sell.
There are differences in how stock exchanges manage Sell on Stop Orders. One key difference is that your order will be triggered when a board lot trades at your Stop Price, except on US markets. Investorline’s internal handling policy for stop orders on US markets is as follows: sell on stop orders are triggered when the Bid meets or falls below the Stop Price.
Sell on Stop Orders are a useful tool to potentially reduce your downside risk. Since Sell on Stop Orders are placed below the current market price, you can use them in two ways: to protect your profits if the price of a stock you purchased rises and then begins to fall; or to minimize your losses if a stock price begins to fall. Visit the Sell on Stop Orders page for more details.
A Buy on Stop automatically becomes a stock purchase order if the price rises to or exceeds* a certain pre-set amount (Stop Price). This order is intended to limit losses, specifically on a short stock position if the price rises. You can use Buy on Stops to keep an eye on the markets for you. As well as specifying a Stop Price, you can set your order‘s maximum duration at up to 45 days by selecting a preferred Good Till date. You can also modify the order and extend the Good Till date any time prior to expiry.
There are differences in how stock exchanges manage Buy on Stop Orders. Be aware that your order will be triggered when a board lot trades at your Stop Price or higher, except on US markets. Investorline’s internal handling policy for stop orders on US markets is as follows: buy on stop orders are triggered when the Ask meets or rises above the Stop Price. Once activated, the Buy on Stop becomes a Market Order,** which will be filled on a best-efforts basis at the optimal price available.
We cannot guarantee that your Buy on Stop Order will be executed at the indicated Stop Price once it is triggered as a Market Order. In volatile markets or with volatile stocks, the actual price you receive may be considerably higher than expected. To reduce your upside risk, you may select a Stop Limit in markets that permit it. This is a restriction on your order that says that once your Buy on Stop Order is triggered, you will not accept a price higher than the Stop Limit. If the market price of your stock rises above your Stop Limit before your order is executed, the order will be held through the specified Good Till date. If the price falls again, we will attempt to fill your order at the Stop Limit price or better.
A Buy on Stop Order is a useful tool for potentially reducing your upside risk. Since Buy on Stops are placed above the current market price, you can use them in two ways: to protect your profits if the price of a stock on which you hold a short position falls and then rises again; or to minimize your losses if the price of a short stock goes up. For more details, visit the Buy on Stop Orders page.
When you place a Sell on Stop Order and your stock reaches its Stop Price in the marketplace, your order becomes a Market Order and your stock will be sold for the best available price. In volatile markets or with volatile stocks the price you receive may be considerably lower than you are prepared to accept. To reduce your downside risk, you have the option of selecting a Stop Limit in those markets which permit it. The Stop Limit is a restriction on your order which says that you will not accept a price less than the Stop Limit for your stock. Markets which permit Stop Limits include: the Toronto Stock Exchange, the New York Stock Exchange and the TSX Venture Exchange. This feature is not available for Nasdaq listed stocks.
If the market price of your stock falls below your Stop Limit before your order is executed, your order will be held through your specified “Good Till” date. If the price climbs back up, your order will be triggered** at your Stop Limit.
**Your Sell on Stop and Trailing Stop Orders will be triggered when a board lot trades at your Stop Price, except on US markets, where a matching Bid will trigger your sell order. If a Stop Limit is selected, your order will not be filled for a price that is less than your Stop Limit. Stop Limits are not allowed on Nasdaq. Sell on Stop and Trailing Stop Orders are executed on a best efforts basis. We cannot guarantee that your order will be executed at the Stop Price indicated once your order is triggered as a Market Order.
***Closing High: The last highest closing price for the stock since the Trailing Stop Order was placed (not necessarily the previous close). The Trailing Stop percentage is initially applied to the previous day's closing (Previous Close). Subsequently, this percentage is applied to any new Closing High.