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Playlist Finance: Investing 37 videos

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Finance: What is a 12b1 fee?
91 Views

What is a 12b1 fee? A 12b1 fee is paid on mutual funds. The fee is paid by investors and is used to market the mutual fund to other potential inves...

1
Finance: What are moving averages?
7 Views

What are moving averages? Moving averages are calculated using past stock prices in an attempt to determine future trends. It’s calculated by ave...

2
Finance: What is the Difference Between Load and No Load?
45 Views

What is the difference between load and no load? Load and no load are terms used for different mutual funds. Load mutual funds charge a fee or comm...

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Finance: What are Buy Stop and Sell Stop Orders? 10 Views


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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

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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