tag:blogger.com,1999:blog-6474024174085167013.post4716921122505635113..comments2024-02-16T08:42:37.676-06:00Comments on Passing the Series 65 and 66 exams: Practice Questions step-by-stepUnknownnoreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6474024174085167013.post-5525072671165463042009-01-22T18:41:00.000-06:002009-01-22T18:41:00.000-06:00Steve, excellent question. I would guess that mayb...Steve, excellent question. I would guess that maybe 80% of all test-takers struggle with the subtle but major difference between a sell-limit and a sell-stop order. When I opened my first online investment account through Ameritrade, I remember reading and re-reading their definitions several times before the light bulb finally went off. Basically, there are two ways to look at it, from a math perspective and from an emotional perspective. Let's start with the math approach. If the stock is trading at $60, and you want to protect against a DOWNturn, you have to place the trigger price below the current market price. In other words--only sell this stock IF it goes down. If it stays at $60, I want to hold it. If it goes down to 59 or lower, sell it. But, only if it goes down. Sell stop orders (stop loss orders) are placed below the current market price so that the investor will only sell the stock if the stock drops. If you're still bullish, you want to hold the stock. In this case, the investor wants it both ways. He wants to hold a winner, but if it turns out to be a loser, he wants it sold automatically. That's how sell-stop orders work.<BR/>A sell-limit order is placed above the current market price. In fact, if you were to place a sell-limit at @59 with the stock at $60, your order would be immediately executed, right? You're saying you want to get at least $59 for your stock--the market is already there. I did this once in my first days in the Ameritrade account 10 years ago. Cost me an extra $5 to place the limit order, which acted just like a market order due to my inattentiveness. I learned fast that sell-limits are only placed above the current market price.<BR/>From the "emotional" perspective, if you really want to sell, you use a sell limit order. You want to sell IF you can get a little bit more than folks are paying right now. You're like a seller on Ebay--you have a minimum price you'll accept before you'll sell your stuff. As long as someone will give you X amount, you'll sell. But not until you can get at least that minimum (limit) amount.<BR/>When you want to hold the stock as long as it stays where it is, but cut your losses if it drops, you use a sell-stop, placing it below the current market price, just as far down there as you're willing to watch it drop before puking. <BR/>To me, sell limits make no sense whatsoever--if my stock is rising, why would I want to sell it? Get out of a rising market? Huh?<BR/>I only sell when faced with disaster. I could place sell-stops about 20% below my purchase price and not have to look at that stock so much. Right? If it drops 20% or so, it's gone automatically If it behaves itself, I'm holding it. That's the beauty of the sell-stop or "stop loss" order. Stop my LOSSES. Let my winners run as long as they want to run.B Walkshttps://www.blogger.com/profile/13428079363476989854noreply@blogger.comtag:blogger.com,1999:blog-6474024174085167013.post-22593963507716711462009-01-21T01:18:00.000-06:002009-01-21T01:18:00.000-06:00I have a question as a result of one of your pract...I have a question as a result of one of your practice questions on the passthe66 DVD. The question involved an investor who had purchased 100 shares at 20 and the stock had risen to 60. Investor was still bullish long term but wanted to protect against a short term downturn. I could not figure why the choice would be a sell stop @ 59 vs. a sell limit @ 59? Why the one and not the other. I thought sell limit would be the better choice. Thanks.Steve Wilsonhttps://www.blogger.com/profile/18353133369971763054noreply@blogger.com