Difference between stop buy and limit buy

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qhuifong

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Hi,
Cannot figure out what is the difference between a stop buy/sell and a limit buy/sell. Both appears to be the same to me.
Anyone tried Schweser 2008 page 254 question 2? I thought the answer would be ‘any of the above’, it is really up to an individual how they want to strategise their buying or selling right?
Confused!!!
Ange
 
the way i see it is that limit orders are set to buy or sell at a better price while stop buy/sell orders are placed to protect your profits. Hope that helps. Just think of a few examples now and see if it helps.
 
Think of stops as being a trigger, whereas limit is just that, a limit.
Example:
XYZ is currently trading at $50.00. If you’re looking to sell, say if you’re worried about the price falling below 45 bucks you want to sell it right away, you could have your “stop” set to 45, which would then trigger it to be a market order (so technically it could sell lower/higher than the 45 stop price, because it is only a trigger, afterall.)
Taking that a little further, we can introduce a stop loss limit order, remaining with 45 as our trigger, this time, say you want it to be triggered at 45, but you don’t want to sell any shares less than 44.50, this would be your limit.
With stop buys its just the opposite.
Just remember that a stop is only a trigger, and you’ll be fine.
 
Somwhatdamaged said it well. A stop order is a trigger (think of the name “stop loss”). The price is placed below the market when you are long (stop yourself out when the market dives) and above the market when you’re short (stop yourself out when the market goes up). When the stop price is triggered, a market order is sent to either buy or sell your stock. If it’s a stop limit, a limit order is sent out instead.
Stops are popular in technical analysis as they come in handy when you want to buy a stock if it breaks out above resistance, or sell/short a stock when it breaks below support.
Limits can be translated to “at that price or better.” In other words, if it’s a buy limit, you will pay that price or lower–and it’s usually placed below the market when you enter the order. If it’s a sell limit, you will only accept that price or higher–typically placed above the market.
When I studied for the series 7, there was a mnemonic we used:
Above market: OSLOBS (Open Sell Limit, Open Buy Stop)
Below market: OBLOSS (Open Buy Limit, Open Sell Stop)
 
if Euro futures contract is currently trading at 1.5575 and you want to buy it, you have a few options. You can either buy at market - at the lowest offer, or you can buy on a limit (you think prices will go up but you’d like to get a better price, say buy on a limit at 1.5550) or you can buy on a stop (say 1.5590 - if markets go up and hit that level an automatic market order will be initiated - stop orders are used when you want to see a confirmation that markets will go up)
 
Dear All,
Sorry I didn’t know the people in this forum are so helpful! The guidance provided are very useful… a stop is only a trigger!
Thanks!!!
Ange
 
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