Power Profit Trades
Tom Gentile’s twice weekly free newsletter Power Profit Trades
Click here for this special report
Share & Discuss
November 27, 2018 Two
The Fresh York Stock Exchange recently announced that it will no longer accept zekering orders (including stop-loss and zekering limit orders) beginning February 26, 2018. That’s on the high-heeled shoes of similar announcements from NASDAQ and BATS.
That means that the three of the fattest exchanges te the country now no longer permit investors to place zekering orders on their trades.
While some brokerage houses are likely to keep them intact to attract retail investors, they will be executed internally rather than on the major exchanges.
Stops were designed to help investors limit their downside risk and protect their profits. They permitted investors to go about their lives with a failsafe ter place ter the event they were not ter vooraanzicht of their trading screens to manage their positions – which, for individual investors like you, is most of the time.
So what are you – the media retail investor – to do? How are you supposed to protect your hacienda and your profits? Let mij suggest you a few considerations that will help you (and the caudal te your account) get through this stir by the major exchanges.
Why Exchanges Are Ditching Zekering Orders
Spil wij’ve talked about before, a stop-loss order is an order to close a position if it trades to a specific, pre-determined price.
For example, let’s say you buy a stock for $42.50 and you set your stop-loss at $42. When the stock trades down to $42, your stop-loss order turns into a market order to sell that stock. The next trade will be yours at whatever the market price is at that time, which may be $42 or a bit less.
If you’re using options, a stop-loss order acts te much the same way. Let’s say you buy an option at $Four.00 and you place a stop-loss order at $Trio.00. At the time the market trades at $Three.00, the market order will automatically be placed and the next trade is where you will sell the option, which may be that $Trio.00 or less, depending on the market.
The thickest concern with a stop-loss order is the fact that merienda your order triggers, it turns into a market order. Ter a fast-moving market, the zekering price can be kasstuk and the next price at which the trade will be executed can be much lower and result te thicker losses than anticipated – exactly what you dreamed to avoid by using a zekering order ter the very first place.
And sometimes, your position can come back and trade higher on the day after your zekering is triggered, making you wish you never got out ter the very first place.
The stock exchanges want you to believe that is the reason they are eliminating the stop-loss order – because retail investors use them without understanding thesis two crucial points: that your zekering order is a market order merienda it’s bot triggered, and you may get bounced out of positions just before they trade higher.
That may be one of the reasons, but it isn’t the only one.
You see, zekering orders are uncommonly used – they represent something like 2% of all orders placed on exchanges. Professional traders don’t use them because they are ter vooraanzicht of their trading screens all day. Zekering orders are used almost exclusively by retail investors – that means you.
Reminisce to check with your brokerage and see how they want you to go about using/placing stop-loss orders with them or through their trading verhoging going forward.
Or you can consider using thesis helpful instruments instead…
Two Ways to Get through Without Zekering Orders
- Using Price Alerts
Price alerts are NOT orders to close a trade (for more on those, go here).
Merienda you get your pack to open a stock or an option position, you can then place a price attent on it. This will waakzaam you merienda your position has traded to a predetermined price. But instead of the trade being executed spil a market order, you’ll be alerted via text or email (find out what kleintje of alerts your broker’s trading podium can provide).
When you receive this voorzichtig, you can then go to your screens and see what the market conditions are and determine what type of closing order you wish to use and at what price to do so, putting you te total control!
Price alerts will still require you to place your official order to close the trade, but that’s ok by mij, because that means YOU are te control of placing the order frente a being at the grace of a pc program or current market pricing.
If you’re a Money Calendar Bedachtzaam subscriber, or if you’ve seen some of the Case Studies wij’ve done here at Power Profit Trades, you know that I don’t use stop-loss orders on my options trades.
That’s because I slash my down to $500 or less for every trade – and I’m comfy with the uitzicht of losing 100% on each trade, so there’s no need to use stops.
If you desired to own 100 shares of FDX, which is presently trading around $162, you’d have to shell out $16,200 for the privilege.
If you place a 25% stop-loss on the position and the stock drops 25%, that’s going to cost you $4050.
Or you could just buy a call option that would permit you to control those same 100 shares for a fraction of the cost and a fraction of the risk – without having to use stops. If you bought an FDX call option for $Two.50 (or $250 vanaf contract), and that option expired worthless, all you’d lose is that $250.
You can think of your options trades spil having the same risk control that you get with stop-loss orders… without the cost risk of traditional stock trades.
Your Survival Depends on One Thing
No matter what you do, your survival is going to come down to how well you build your trade project and stick to it.
If you are the type that switches your mind or looks for a reason to drape on to a losing position when the stock or option is not working, you will have a much firmer time using price alerts than those that project their trade and trade their project.
Spil long spil you stick to your trade project, you’ll sustain – and even thrive. Because any good trade project commences with the idea that haber preservation is the absolute key to success.
Here’s your trading lesson summary:
The major exchanges are doing away with stop-loss and zekering limit orders. Here’s what you need to know…
- The NYSE, NASDAQ, and BATS are all phasing out zekering orders by early next year.
- Some brokerage firms will keep zekering orders intact, but they will be executed internally and not on the major exchanges.
- Sustain without stops by using price alerts on your stock positions to let you know when it’s time to uitgang a position. Alternatively, consider using options to cut your risk.