Limit vs Stop order

fp92

Hi guys, hope you can help me with this one:

I saw a phrase in the CFAI curriculum (Equities and FI book) which I don't quite follow - what does "GTC, stop 65 RMB, limit 100 RMB buy" mean exactly?

Sophie

Hey @fp92:
GTC means the order is good till cancelled. A buy order is activated at RMB 65 but the purchase price will never exceed RMB 100.

The word Stop (buy) here means that the buy order would be activated when the price reaches that level. Just as an example, if a stop buy order is put at $50, once the price reaches (or surpasses) $50, it becomes a market order. It's important to know that it doesn't necessarily mean that the executed price would be $50 though, as it could be higher.

Stop sell (stop loss) order is the same thing but flipped the other way around. If a stop sell order is $30, a sell order is activated at $30 but may be executed at a lower price.

Hope this helps!

fp92

Yes it does @Sophie, much much appreciated!