Sell on Stop Orders

Sell on Stop Orders are a useful tool to help you minimize your downside risk if prices take a sudden downturn. Since Sell on Stop Orders are placed below the current market price, you can use them in two ways: to minimize your losses if a stock that you purchased isn’t performing as you had anticipated; or to protect your profits if the price of a stock you purchased rises, hits a peak and then begins to fall.

To illustrate how Sell on Stop Orders work, let’s look at two examples based on stock XYZ purchased at $10.00 per share.

1. Minimizing your losses

You may already be managing your portfolio on your own to an investment strategy which minimizes your losses. For example, if you are not prepared to hold any stock after it loses 25% of its original value, then you would want to be actively checking the market and placing an order to sell stock XYZ if it hit $7.50.

Using the above example, once your order to buy XYZ is filled at $10.00 per share you can immediately place a Sell on Stop Order with a Stop Price of $7.50. You can set your order with a duration of up to 30 days by selecting your desired “Good Till” date. Your order will be tracked through its “Good Till” date and if the stock price falls and reaches your Stop Price of $7.50, your order will be triggered* when it reaches your Stop Price of $7.50. At this point, the order becomes a Market Order and will be filled on a best efforts basis at the best available market price.

2. Protecting your profits

Consider how Sell on Stop Orders can protect your profits. Stock XYZ’s price climbs to a market value of $15.00. You aren’t ready to sell stock XYZ, but you want to protect your “paper” profits. You have now made a 50% return on your investment. You want to realize at least a 25% return on your investment should stock XYZ’s price suddenly start to fall.

Using a Sell on Stop Order, you can set your Stop Price to $12.50. You can specify a duration of up to 30 days by selecting your desired “Good Till” date.

If stock XYZ’s price continues to rise, your Sell on Stop Order is managed through its Good Till date. If stock XYZ’s price begins to fall, your order will be triggered* when it reaches your Stop Price, in this example $12.50. At this point, the order becomes a Market Order and will be filled on a best efforts basis at the best available market price.


For related information, please refer to
Trailing Stop Orders
Hard Stop Orders
Stop Orders - Frequently Asked Questions

 

*Trigger: Your Sell on Stop Order will be triggered when a board lot trades at your Stop Price, except on Nasdaq, where a matching Bid will trigger your sell order. If you choose to set a Stop Limit, 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 Orders are executed on a best efforts basis. We cannot guarantee that your Sell on Stop Order will be executed at the Stop Price indicated once your order is triggered as a Market Order. For more details, please refer for Stop Orders - Frequently Asked Questions.