Can someone help me clarify this statement. I don’t have the full question, but it was asked on one of the mocks. “stop buy order would enable a short seller to minimize potential losses” Is stop buy --> stop loss buy ? Short seller will incur losses if prices go up. If prices go up stop price, stop buy order will buy shares. But how does the whole this hedges short sale position ? Help !!!
You got that right. You shorted a stock at $100, and placed a stop buy order at $110. So, if price rises, you get stopped, i.e., limit your loss to 10%.
When you are short, you borrowed the security and sold it. At some point you will have to repurchase the on the open market to return it to the lender. If the stock continues to appreciate a stop buy, will buy the security so that you can lock in your loss before it continues to go up.
A stop buy order essentially cuts the losses of the short seller. The stock price could continually go up and the short seller could continue losing money. Think of it as being placed at the price that coincides with the maximum loss that they could take
I also get confused with that terminology.
So, stop buy is same as stop loss buy?
I see the point. Dreary, MT, VB - thanks a lot. I liked your explaination MT