Cathy & Jim said:
I have used stop loss and trailing stop loss orders, but they make me nervous now that computer programs can send a stock crashing down in seconds or even milliseconds. Once a stop loss order is triggered, a market order is issued. By the time that market order is filled, it is possible for the stock to drop much lower than I would have wanted to sell at. The stock might drop most of it's value. A few minutes later when everyone knows it was a error of some kind, the stock price is back where it was, In the meantime a stop loss order could have wiped your position out. The same thing could happen when I place a market order, but I think the odds of it going into free-fall at the same time are much less. I say that because I think if a stock heads south and hits my stop loss level, it is already in play and seems more likely to be involved in a flash crash. I still hear financial pundants suggest stop loss orders, but I am not so sure they are still such a good idea with todays high speed trading.
Happy investing!
Jim
I don't disagree that a flash crash could cause the sale to occur at a lower price than the price one set to trigger the sale, but you may note that I specifically asked about a partial sale of 1/3 or 1/2 of Derek's stock, not his entire holdings. Doing it that way limits how much stock could be sold at a lower than desired price. Nothing wrong with using market sell orders, except the same thing can happen, as you said. Using market orders also limits the upside potential or forces the owner to watch the stock continuously to decide the exact time to sell (if they want to try to maximize their profit).
Derek,
To answer your question about stop loss orders (Jim's concerns not withstanding) - They do not require any additional payments to third parties (unless you use an unusual brokerage firm that charges extra for such things, but most large/good brokerage houses do not). Nor do they add significant additional risk IMHO (if one feels flash crashes are significant risks, then I guess they do add significant risk).
In its simplest form, a stop loss order is a request to have your brokerage house sell a defined number of your shares if the price drops below a price that you define. You always have the ability to rescind the stop loss order if you decide not to sell, if you do so before the trigger price is reached.
Example: When I looked at TSLA today, it was at around $77. If I owned any and the price was double or triple what I paid for it, I might want to lock in my gains (or at least ensure that there was no way I could lose any real money) by selling enough shares to recoup my initial investment at say $70 (if I had initially purchased 1000 shares at $35, I could sell 500 shares at $70). I would still have 500 shares working for me and if the price goes back up, great. If it continues down I can choose to sell or hang on to the other 500 shares. Or I could use the $3500 I got from the sale of the 500 shares that I sold to buy more shares at the cheaper price (when the price drops to where I think it's worth buying again). If it went back down to $35 I could buy 1000 more shares and hope it goes back up. Now I would have 1500 shares, having risked only my initial $3500. If the price doesn't drop below $70, nothing happens to my shares and I just keep riding the price up. If it goes to say $80, I can raise my price for the stop loss to $75 and make even more if it drops below $75.
Jim's point about computer trading is why I would have no problem if the SEC changed the trading rules so that some period of time greater than milliseconds (let's say 30 minutes or an hour) must pass before an entity can sell shares they just bought.
IMO it would be nice if the stock market got back to its original function - allowing investors to own a share of a company that they feel will make money over the (relatively) long term, because it does its business well, not because a big chunk of money was used to buy the stock making it "seem" more desirable and artificially driving the price up so that those very same shares can be sold for one penny more than they were bought for. But that might put a crimp on the traders.
Don