If you place a stop-loss order to sell at $52 on a stock currently selling for $55.50 per share, what is likely to be the minimum loss you will experience on 100 shares if the stock price rapidly declines to $49.50 per share? Explain. What if you had placed a stop-limit order to sell at $52, and the stock price tumbled to $49.50?
If you place a stop-loss order to sell at $52 on a stock currently selling for
$55.50 per share, what is likely to be the minimum loss you will
experience on 100 shares if the stock price rapidly declines to $49.50 per
share? Explain. What if you had placed a stop-limit order to sell at $52,
and the stock price tumbled to $49.50?
Stop loss- This is a method adopted by an investor to limit the loss on a security position. The stop loss method works in the following way:
Suppose an investor bought a stock for $10 and wants to limit the loss at $7, then such investor can place an order in the system to sell the stock as soon as the stock comes to $7. Such an order is called stop loss.
Stop limit order- It is a combination of a stop order and a limit order.
Stop- is the price that triggers a limit order.
Limit-is the minimum and maximum price the stock will be bought or sold for.
Step by step
Solved in 3 steps
