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Special Orders and Trading Instructions – South Florida Broker/Dealer, Investment Advisor and Account Executive Breach of Fiduciary Duty, Breach of Contract, Mismanagement, Negligence and Negligent Supervision FINRA Arbitration and Litigation Attorney:
Special Orders and Trading Instructions:
In addition to market and limit orders, brokerage firms may allow investors to use special orders and trading instructions to buy and sell stocks. One common special order and trading instruction is the “stop-limit order.”
Stop-limit Order:
A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is reached, a stop-limit order becomes a limit order that will be executed at a specified price (or better). The benefit of a stop-limit order is that the investor can control the price at which the order can be executed. Before using a stop-limit order, investors should consider the following: (a) as with all limit orders, a stop-limit order may not be executed if the stock’s price moves away from the specified limit price, which may occur in a fast-moving market, (b) short-term market fluctuations in a stock’s price can activate a stop-limit order, so stop and limit prices should be selected carefully, (c) the stop price and the limit price for a stop-limit order do not have to be the same price. For example, a sell stop limit order with a stop price of $3.00 may have a limit price of $2.50. Such an order would become an active limit order if market prices reach $3.00, although the order could only be executed at a price of $2.50 or better, (d) for certain types of stocks, some brokerage firms have different standards for determining whether the stop price of a stop-limit order has been reached. For these stocks, some brokerage firms use only last-sale prices to trigger a stop-limit order, while other firms use quotation prices. Investors should check with their brokerage firms to determine the specific rules that will apply to stop-limit orders.
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