Why can’t I enter two sell orders on the same stock?


  • Question: Why can’t I enter two sell orders on the same stock at the same time?
  • The short answer is that most brokers won’t allow this to make sure you don’t double-sell the stock, minimizing both your risk and theirs.
  • To answer this in more detail, let’s look at a few different situations.

A multiple sell order scenario

You bought a stock for $ 10 but you want to be able to protect yourself against loss, so you decide you want to enter a sell order if the price reaches $ 9.50. Deep down though, you think the stock is going up and you want to lock in profit at $ 11, so you want to enter a second sell order at $ 11.

The problem is that you will find that with most brokers, you cannot use this strategy … Why not?

Stop orders versus sell orders

The first is the first. The order you should try to enter for the price of $ 9.50 (to reduce the downside) is a stop order and not a limit sell order. This is important because if you enter the order as a limit order of $ 9.50, it will be sent to the exchange and will be filled immediately at the best available price, which should be around $ 10. This does not achieve the strategy of the necklace you are trying to create.

The second reason why your broker does not allow you to enter two sell orders in your account is that you cannot have more sell orders in your account than the number of shares you own. This limitation is designed to protect you.

If the stock you are referring to is very volatile, for example, and reaches $ 11, and then falls beyond $ 9.50 on the same day, then you have effectively sold the position short without properly documenting it as a short sale. .

Prevention of unnecessary exposure to risk

At the same time, you cannot cancel one of the orders after the other has been completed. Although this sounds reasonable, brokers consider this exposure unnecessary and will not allow you to take such a position in the first place.

Also, as most of these restricted orders are handled manually by merchants, they don’t have time to look at the price of a single action to decide which order is correct and then complete the order. Then they would have no way of avoiding their unnecessary exposure to risk.

Customizable IT trading platforms

An alternative that some brokerages have provided to increase order flexibility is the option of customizable computer trading platforms. This is software distributed by some active trading discount brokerage agencies to their clients, allowing them to enter different orders according to their investment strategies.

Loss prevention / profit taking is a type of order that can be entered using this platform, but the downside is that the order is only effective while you are connected to the Internet and your computer is working; that is, the software is what monitors the market and will send the corresponding order when necessary. No order is placed on the market until the appropriate triggers are met, so for example, if you have internet connectivity issues with your computer, your order will not be executed.

www.investopedia.com

READ ALSO:  How is absorption costing treated under GAAP?
About the author

Mark Holland

Leave a comment: