question archive If you place a stop-loss order to sell at $23 on a stock currently selling for $26
If you place a stop-loss order to sell at $23 on a stock currently selling for $26
Subject:FinancePrice:2.86 Bought15
If you place a stop-loss order to sell at $23 on a stock currently selling for $26.50 per share, what is likely to be the minimum loss you will experience on 50 shares if the stock price rapidly declines to $20.50 per share? Explain. What if you had placed a stop-limit order to sell at $23, and the stock price tumbled to $20.50? (2)
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Solution:
Stop loss is an advance order to sell a security when it reaches a particular price point.In the given case stop loss order is made at $23,thus stock shall be sold at a prevailing market price once the price falls below $23
Accordingly,minimum loss is:
=(Current price-execution price)*50
=($26.50-$20.50)*50
=$300
In case of stop limit,order will be executed at the limit price or better.Thus loss under stop limit order is:
=($26.50-$23)*50
=$175
