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Baeosistine
ڜڭۑۄڴڡڟژۻۼئٹ



Registered: 12/23/07
Posts: 902
Loc: England
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don't lose out!
#7986288 - 02/06/08 11:22 AM (15 years, 11 months ago) |
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Everyone who holds stock should have a Stop Limit order set up. That way if the company make a sudden negative announcement (e.g. going bust!) then you won't lose out.
For example, I buy 1000 share in ISAT at 320 each, I want to hold them reasonably long term, and am aware that might fluctuate a bit before making real gains. I put a Stop Limit order to sell for 270.
Next day, while I am in the shower, all their satellites crash to earth because of a software error, killing 329000 people. Their share prices plummets to 6. My shares however were sold at 270, so I don't have too much to worry about.
-------------------- jesus
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geokills
∙∙∙∙☼ º¿° ☼∙∙∙∙


Registered: 05/08/01
Posts: 23,417
Loc: city of angels
Last seen: 2 hours, 48 minutes
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The theory of a stop limit is very sound. Set your stop price to limit your losses, forcing a sale of your investment if the value of your investment falls to your stop price.
But in your scenario of massive liability and an essential bankruptsy of the company, it is highly likely that the stock would "gap" lower. Meaning that if the disaster occured outside of trading hours, the stock may have closed at $320 the previous day, but it would open at $6 instead of traversing its way lower as the news broke.
With this gap, there would be no buyers in between the $320 close and the $6 open. So would your stop limit at $270 sucessfully execute? Who would be paying you your $270 asking price if there are no buyers between yesterday's $320 and today's $6 bid?
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-------------------- ┼ ··∙ long live the shroomery ∙·· ┼ ...╬π╥ ╥π╬...
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badchad
Mad Scientist

Registered: 03/02/05
Posts: 13,372
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Re: don't lose out! [Re: geokills]
#7986443 - 02/06/08 12:21 PM (15 years, 11 months ago) |
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You can do the opposite as well. If a particular stock is trading well below its usual "average", you can buy it, then place an order to have it sold at a particular price.
-------------------- ...the whole experience is (and is as) a profound piece of knowledge. It is an indellible experience; it is forever known. I have known myself in a way I doubt I would have ever occurred except as it did. Smith, P. Bull. Menninger Clinic (1959) 23:20-27; p. 27. ...most subjects find the experience valuable, some find it frightening, and many say that is it uniquely lovely. Osmond, H. Annals, NY Acad Science (1957) 66:418-434; p.436
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Baeosistine
ڜڭۑۄڴڡڟژۻۼئٹ



Registered: 12/23/07
Posts: 902
Loc: England
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Re: don't lose out! [Re: geokills]
#7986509 - 02/06/08 12:38 PM (15 years, 11 months ago) |
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Of course there are times it won't work out, but it's like locking your front door when you go out - people can still break in to your house, but it makes it that bit harder for them, and you'd look a bit foolish complaining about your loss if you had left the door wide open.
-------------------- jesus
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