When it comes to trading and investing, no one wants to lose money. That is why it is critical to establish a foundation for your security stance, such as placing stop-loss orders. Many investors, however, struggle to determine how and where to place their stop-loss orders.
You can submit a buy or sell stop-loss order on Merrill Edge after you have selected the asset class you want to trade. Selecting the asset class opens an order ticket where you specify the stop price you want for the selected asset.
I’ll go over the concept of stop-loss orders and how to set one on Merrill Edge in this post. We’ll also look at answers to questions about placing both a limit order and a stop order and if stop orders work in extended hours.
Let’s get started.
Where Should You Set Your Stop-Loss?
A stop-loss is an advance purchase or sale order placed with a brokerage service when the price of a security reaches the stop price. A stop order becomes a market order once the price of the security reaches the stop price. That is, once the stock falls to the stop price, it would be sold as a market order in the next available opportunity.
Stop-loss orders are used to minimize an investor’s losses on a security position. Still, if you place them too far apart and the market moves in the opposite direction, you might lose a lot of money. You can also get out of a position too rapidly if you set your stop-losses too close together.
So, where exactly do you set your stop-loss?
Targeting an acceptable risk level is the key to determining where to place a stop-loss order. The stop price should be set strategically to minimize loss.
There are different types of stop order approaches and they have diverse applications based on the timing strategies used. For example, some theories employ general stops, such as a 6% trailing stop set on all stocks. Other approaches employ security-specific stops, such as average true range percentage (ATRP) stops.
Another strategy is the support method. Here, hard stops are placed on a set price. This strategy may be a little difficult to follow and is used by more advanced traders. It entails determining the most recent support level of the stock and placing your stop-loss order just below that level.
Stop-loss placement is a strategic decision that should be made after trying and practising multiple techniques. Then you can determine which approach is most effective for you.
How Do You Set Up a Stop-Loss on Merrill Edge?
Follow these steps to set up a stop loss on Merrill Edge.
- Choose your stop-loss strategy. You probably have a strategy to follow when you want to determine when and where to trade securities. These indicators should also help you determine where to set your stop-loss order.
- Select the “Trade” icon on your Merrill Edge account interface to open an order ticket.
- Place a stop order. In your open order, include the stock symbol and number of shares, and specify the stop price that you want. For a sell stop-loss order, the stop price for the stocks you’ve bought must be lower than the current market price. The stop price for a buy stop-loss order will be higher than the current stock price.
- Submit your stop order. You do not need to continually monitor this order as the stop order is activated once the stop price is reached.
If your trade is successful and you began to profit, you can adjust your stop-loss price.
Buy Stop Orders and Sell Stop Orders on Merrill Edge.
As I mentioned earlier, you can set both a sell stop loss and buy step loss on Merrill Edge, but how are these two orders different?
A buy stop-loss order requests the broker (Merrill Edge in this case) to buy the security at the stop price. This order is set higher than the current market price to ensure that the trader does not pay too much for the securities. You can request a buy stop-loss order via call or through the Merrill Edge platform.
Buy stop-loss orders are generally employed when a trader wants to get out of a sinking market near the bottom following a turnaround or when they want to get out of a short trade. You can also use the order to buy breakouts above resistance levels when you are unsure of the exact price at which you would purchase the security.
On the other hand, a sell stop-loss order instructs Merrill Edge to sell the security at the best price possible if it falls below the stop price. This order is set below the current market price so that the trader can sell the investment for a profit while avoiding a significant loss.
If you are unsure of the exact price at which you will sell the security, you can set a sell stop loss to sell on breakouts below the support level and to terminate a long trade.
However, the market purchase or sell price may not be near the stop price for a highly volatile market. As a result, the price of the security may fluctuate in the duration between the stop loss being triggered and the trade being executed, eventually leading to a significant change in the price of the security. Regardless, the stop-loss order is filled.
Is It Possible to Set Both a Limit Order and a Stop Order on Merrill Edge?
A stop-limit order combines two types of orders – a stop order with a stop price and a limit order with a limit price that may or may not be the same as the stop price.
So, you can set both a limit order and a stop order on Merrill Edge. Your limit order is activated when the stop price is reached.
While the primary aim of the stop order is to minimize loss, the limit order is used to buy or sell securities at a specified price to lock in profits.
Do Stop-Loss Orders Work in Extended Hours?
Stop orders are generally not executed during non-regular trading sessions because they are market orders. Stop-loss orders placed during extended hours are queued until the next trading day when the market is open.
This limitation holds because trading during extended hours is riskier than during regular hours as fewer traders make market moves.
As a trader, you aim to make a profit and minimize loss as much as possible, and we have seen that setting a stop loss is one way to go about that. You can set up a buy or sell stop-loss on Merrill Edge by placing an order on the trading interface.
We have also seen that the wrong placement of a stop-loss order comes with risks. So, you have to develop an effective strategy to determine where to place your stop order.
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