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. What is the difference between a stop and a market order?

    Learn about market orders and stop orders, how they are used and executed, and the main difference between stop orders and ... Read Answer >>
  2. How can I use a stop order to limit my losses on a long stock position?

    Learn about stop orders, different stop order types, and how to use stop-loss orders and stop-limit orders to limit losses ... Read Answer >>
  3. What is the difference between a stop order and a stop limit order?

    Learn the differences between a stop order and a stop limit order. Traders use these as stop losses and regular investors ... Read Answer >>
  4. Are stop limit orders for stocks only?

    Find out what kinds of financial instruments can be purchased or sold using stop-limit orders, and learn why other kinds ... Read Answer >>
  5. What does "gather in the stops" mean?

    "Gather in the stops" is a trading strategy used by investors to trigger stop orders already in place so that the price of ... Read Answer >>
Related Articles
  1. Trading

    Protect Yourself From Market Loss

    There are several simple strategies you can use to protect yourself from downside risk.
  2. Investing

    The Basics of Trading a Stock: Know Your Orders

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  3. Investing

    Narrow Your Range With Stop-Limit Orders

    With stop-limit orders, buyers protect themselves from prices too high for their tastes.
  4. Investing

    Understanding Buy Stop Orders

    A buy stop order is an order to buy a stock at a specific price above its current market price.
  5. Trading

    Manage Risk With Trailing Stops And Protective Put Options

    Using the right strategy can lower the risk of failure and protect your profits.
  6. Trading

    Trailing-Stop/Stop-Loss Combo Leads to Winning Trades

    Combine trailing stops with stop-loss orders to reduce risk and protect portfolio value.
  7. Trading

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
RELATED TERMS
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop ...
  2. Bracketed Buy Order

    A buy order that is accompanied by a sell limit order above the ...
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number ...
  4. Stopped Order

    A market order on the NYSE that is stopped from being executed ...
  5. Stop Order

    An order to buy or sell a security when its price surpasses a ...
  6. Buy Limit Order

    An order to purchase a security at or below a specified price. ...
Hot Definitions
  1. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  2. Absolute Advantage

    The ability of a country, individual, company or region to produce a good or service at a lower cost per unit than the cost ...
  3. Nonce

    Nonce is a number added to a hashed block, that, when rehashed, meets the difficulty level restrictions.
  4. Coupon

    The annual interest rate paid on a bond, expressed as a percentage of the face value. It is also referred to as the "coupon ...
  5. Socially Responsible Investment - SRI

    Socially responsible investing looks for investments that are considered socially conscious because of the nature of the ...
  6. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
Trading Center