What Is a Stop Order?

This is a very brief introduction to an extremely important instrument, the stop order. It doesn’t matter what your plan if selling, it could be shares, it could be buns, they could be ounces of gold, they could be bushes of weights, other kind of commodities, currencies, and so on. If you’re doing it through broker, you can give this broker ounce of gold and stop order, now, what that means is that an order to close out an opposition. So let’s imagine you bought 3 lots, each lot represents million dollars worth of British pounds for example, and you’re hoping that the object of that you bought is going to go up in value, and you’re going to make a profit, however it might go down in value and you might make a loss.

There are 2 kinds of stops, and the loss stop is the most important one, what that says is that you want to close out your position only at certain loss, so if you buy gold at 900$ an ounce, you might give your broker a lost stop order, at 890$, which says that if the price falls at 890$ the broker should sell back your position so that you will ounce the market, and of course you’ll have taken the loss, but this is to protect you, because if you just kept on to your position, and if it fell to 890, 880, 870, 860, you could make a very, very large loss. So the loss stop is to limit your loss, profits stop, pretty obviously, is a way of getting out of the market and taking a profit. So you might buy something, and you might give the broker a lost stop, and a profit stop order, so that the broker knows that if you start losing money, he can stop it by activating the loss stop when he gets to the price you specified, and if things go well, and you make money, then you hit the profit stop, and the position is squared out to the profit stop.

And, the one last thing to keep in mind is that obviously, you want your loss stop to be closer than your profit stop. There’s no point losing 20$, making 20$, losing 20$, making 20$, losing 20$. You want to run your profits, and cut your losses, and that means, if you buy gold at 900, you might have your loss stop at 890 or 895, but you might have your profit stop at 950 or 920, which means that even if things on average every second day move up or move down, or go against you or go with you, you will be making more money than you lose if you can consistently set the profit stop further way than the loss stop, good luck and be careful.