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Playlist Finance: Investing 37 videos
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Finance: What are Buy Stop and Sell Stop Orders? 10 Views
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Description:
What are Buy Stop and Sell Stop Orders? An investor makes a buy stop order; the buy stop tells the broker to purchase an asset when its price becomes higher than the current trading price. This price is referred to as the strike price and when this strike price is reached, the buy stop becomes a regular order to buy. A sell stop order is the same thing but rather than buying, the investor is selling. It tells the broker to sell a security when a certain price is reached (usually below the current trading price), in order to ensure the investor doesn’t lose too much money on an investment.
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Transcript
- 00:00
Finance a la shmoop... what are buy stop and sell stop orders? buy stop buy stop
- 00:09
sounds like Amazon daily deals right well a buy stop order is sort of in that
- 00:15
realm it automatically executes a buy order if the stock hits a certain price [Buy stop definition appears]
- 00:20
usually above where the stock is today like apples trading at 180 bucks a share
- 00:25
you think iPhones are dead, done, over... the new Tesla phone's gonna eat their lunch
Full Transcript
- 00:30
so you short Apple meaning that you virtually sell the shares of Apple
- 00:34
betting that their stock will go down from the hundred eighty bucks a share it
- 00:38
sits at today but you might be wrong so to save yourself from having to go to
- 00:42
the poor house if Tesla phones explode after a certain ringtone or end up [Man holding Tesla phone and phone explodes]
- 00:47
melting for whatever reason you have a buy stop order along with your short of
- 00:52
Apple at 180 bucks such that the buy stop executes at $200 a share in this
- 00:59
way the most you can lose on the short forgetting the borrow or the cost of
- 01:02
interest on the loan from the brokerage you'll take out too short those
- 01:06
Apple shares well the most you can lose then is 20 bucks a share a sell stop
- 01:10
works the same way times negative one meaning you just inherited a million
- 01:16
shares of caterpillar Tractor Company from old Uncle Albert who kicked the [Uncle Albert gravestone appears]
- 01:20
bucket and we're so sorry as he was walking home you know from where he
- 01:24
parked his tractor and then fell and hit his head on a rock and died yeah that's
- 01:28
Uncle Albert alright well CAT is trading at 50 bucks a share and you think you
- 01:32
want to slowly trim it in small sales over the next 20 years to fund your life [CAT stock trimmed by scissors]
- 01:38
as a sculptor that's what the French literature majors do - as long as CAT is
- 01:43
over say 40 bucks a share well you think you can live a long time on uncle Al's
- 01:48
dough but if it fell cataclysmically below 40 well you'd have issues paying
- 01:54
your rent as a sculpture they're like you wouldn't even be able to afford clay [Person sculpting clay ornaments]
- 01:57
any longer and would have to start sculpting in playdough and that's just
- 02:00
no fun... so you initiate a sell stop order at 40
- 02:05
bucks so that if the stock ever did dip to 40 well it would sell the shares
- 02:10
automatically and you're done all his now your remaining CAT shares would be
- 02:15
turned into cash so what happens if the stock closes one night at 41 dollars a
- 02:20
share you know down from the 50 where it was when you inherited it but then the
- 02:24
company announces a horrible quarter with a Chinese competitor coming into [Chinese competitor tractor company appears in newspaper page]
- 02:28
the market for half the price of their tractors well that Chinese product is
- 02:32
all electric and a hundred percent robotically driven in the CAT union
- 02:36
contracts won't let them downsize fast enough to compete and CAT opens the next
- 02:42
morning at 35 bucks a share well you put the sell stop order in at 40 do you get
- 02:47
the 40 bucks a share or a different price?
- 02:50
well no tough luck limit orders like this aren't guaranteed by the brokerage
- 02:54
they're more of a trigger to then transact up most likely you'd only get
- 02:59
35 bucks a share on your sell stop order oh well and yeah you're not a winner [Man crying on gameshow]
- 03:04
about hopefully you'll look get some nice parting gifts there good luck, buy stop
- 03:08
sell stop, do it...
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