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Stop Order
A stop order is a type of ‘ limit order’, which closes a trade if a specified price (the stop price) is reached or passed. It is used as part of a risk management strategy, to limit the amount of money lost if the markets move in the ‘wrong’ direction and to ‘lock in’ any gains if the market moves against you in the future.

For example, a trader may put in a market order to buy the CAC 40 at a price of 1.500 with a limit order to sell at 1.800, and a stop order to sell at 1.400. If the price rises to 1.800 of falls to 1.400, the trade closes. If the price rises to say 1.700 they may put in a new stop order, to sell at say 1.600. This ‘locks in’ some of the gains (ie, 1.600 – 1.500) if the price drops to 1.600 or lower.

 

 

 

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