The share prices of individual stocks are set by the supply and demand forces of the stock market. If you want to sell shares at a certain price, it is possible to set up the order in advance, and the shares will be sold when the stock hits your sell price. You can use these orders to sell the shares at a higher or lower price, as long as you set up the orders correctly.
When you place an order through your brokerage, you can use one stop order and one limit order to set upper and lower limits for the stock you want to sell.
Stock Order Types
Orders to buy or sell stocks can be divided into two categories. A market order is filled for the current bid price quoted on the stock exchanges for those selling, or for the ask price for those buying. A market order is usually filled almost immediately if the market is open. Your order will be a market order if you direct your broker to buy or sell shares of stock without any additional requirements.
The other type of order is filled when the stock reaches a price set by you. These order types are referred to as limit, stop or stop-loss and stop-limit orders.
The Limit Order
To sell shares of stock, a limit order is used to ensure the shares are sold at a certain price or better. A limit order is set with a sell price above the current market price of the stock. If the share price rises to the limit price, the order will be triggered and the shares sold. Your broker will not complete the order unless the price received is the preset limit price or higher.
Using a limit order in your brokerage account puts an upper price for your ownership of the shares. A limit order can also be used to get a slightly better sell price to a market order by setting the limit price to split the difference between the bid and ask prices. This tactic can be useful with thinly traded stocks with wide bid-ask spreads.
Understanding Stop Orders
A stop order for selling stocks sets the sell price at a level below the current market price of the shares. The stop order is used to limit losses if the stock goes down instead of up and is often referred to as a stop-loss order. A stop order is triggered when the market price touches the stop order price.
A combination stop-limit order can be used to set a lower stop sale price and to sell only at the preset limit price. The danger with stop-limit orders is that if the share price is declining rapidly, the stop-limit order may not get filled, leaving you holding a stock with a much lower value.
Entering Limit and Stop Orders
You can enter a stop order or limit order to sell your shares of stock using the order screen of your online brokerage account. On the order screen, look for the selector for order type and change the order from a market order to the type of order you want to enter. Then you will need to enter the stop or limit share price.
For both an upper and lower sell price, you will enter two orders – one stop and one limit order. The orders will then be listed as pending orders until the share price moves up or down enough to trigger one of the orders. Once one of the orders has been filled, check your pending orders list to make sure the other has been canceled.