A:

Not necessarily. This is, unfortunately, one of the problems with orders. If a stop order is established, it means that the stock will be sold at or beneath a certain price. If you own 500 shares of a company trading for $45 and you put a stop order in at $40, it could be executed at $40 on the dot, but if the market is dropping fast, it may be executed at $38 or a range of lower prices as your shares are being sold off.

With a stop-limit order, you shrink the downward range by saying you only want those shares to sell at $40. For this to work, another person in the market has to bid $40 for all 500 of your shares. However, if there isn't a bid, or a combination of several bids, for 500 shares at $40, then your order won't be executed. In widely traded stocks with high volume, this is usually not a problem.

Remember, shares don't necessarily go down incrementally like a thermometer. They can jump certain prices if the bids and asks aren't matching up. It's possible for a stock to trade at $41 and then $38 without touching $40 mark in any real sense. In practice, however, this doesn't often happen and your stop limit order will likely be filled in a single go or over several trades as the stock price hovers around the $40 level. In short, a stop limit order is doesn't guarantee you will sell, but it does guarantee you'll get the price you want if you can sell.

See The Basics of Order Entry and Protect Yourself From Market Loss to learn more on this topic.

The question was answered by Andrew Beattie.

RELATED FAQS
  1. Do penny stocks pay dividends?

    Because of the small market capitalization and revenues typical of most penny stocks, there are very few that offer dividends. ... Read Full Answer >>
  2. Can you buy penny stocks in an IRA?

    It is possible to trade penny stocks through an individual retirement accounts, or IRA. However, penny stocks are generally ... Read Full Answer >>
  3. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  4. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  5. What is a stock split? Why do stocks split?

    All publicly-traded companies have a set number of shares that are outstanding on the stock market. A stock split is a decision ... Read Full Answer >>
  6. Can my child have an IRA/Roth IRA?

    One of the best assets a person can have is an individual retirement account (IRA), and children can have one as long as ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Explaining Options Contracts

    Options contracts grant the owner the right to buy or sell shares of a security in the future at a given price.
  2. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI KLD 400 Social

    Find out about the iShares MSCI KLD 400 Social exchange-traded fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares DWA SmallCap Momentum

    Find out about the PowerShares DWA SmallCap Momentum Portfolio ETF, and explore detailed analysis the fund's characteristics, suitability and recommendations.
  6. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  7. Professionals

    Don't Let Your Portfolio Be Trump'd by Illiquidity

    A look at Donald Trump's statement of finances and the biggest lesson every investor can learn.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Mutual Funds & ETFs

    ETF Analysis: Market Vectors Semiconductor

    Discover how the Market Vectors Semiconductor ETF chooses its securities, and learn the types of investors for whom this fund is most appropriate.
  10. Mutual Funds & ETFs

    ETF Analysis: WisdomTree SmallCap Earnings

    Discover the WisdomTree Small Cap Earnings ETF, a fund with a special focus on small-cap and micro-cap stocks with positive earnings.
RELATED TERMS
  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Security

    A financial instrument that represents an ownership position ...
  3. Series 6

    A securities license entitling the holder to register as a limited ...
  4. Internal Rate Of Return - IRR

    A metric used in capital budgeting measuring the profitability ...
  5. Board Of Directors - B Of D

    A group of individuals that are elected as, or elected to act ...
  6. Strike Width

    The difference between the strike price of an option and the ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!