Ask Colin

Do you use automatic stops with your online broker?

The detailed question was:

I have been reading your article on Stop Losses on SharesDaily web site. What I do not understand and is never mentioned, is how the stop losses are implemented. Are the stop losses actual sell orders placed with a broker that are automatically actioned when the stock hits the stop loss value?, or are the stop losses mental notes for the trader to action when the stock hits the value? I am only using an online trader at present and they do not provide an automatic stop loss facility. Do you have details of brokers who provide an automatic stop loss facility?

In futures markets and US stock markets stop orders are accepted by brokers. However, not in the Australian stock market. Some Internet brokers accept them - see Newsletters on my web site.

You can use a stop order to buy or to sell. Stop orders can take several forms, but the most common is to buy or sell at market if a certain price is traded. So, you might buy the SPI at 3015 with a stop at 3010. If the SPI trades at 3010 or less, your order is put into the market and will be executed at market price (maybe above 3010 or maybe below 3010) as soon as possible.

In the stock market here, you have to observe the market trading at your stop level and then contact your broker with your order.

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