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Hello, my name is Mark Griffith. This is a very brief introduction to an extremely important
instrument, the stop order. It doesn't matter what you're buying or selling, they could
be shares, they could be bonds, they could be ounces of gold, they could be bushels of
wheat, other kinds of commodities, currencies and so on. If you're doing it through a broker,
you can give the broker what is called a "stop order". Now, what that means is that's an
order to close out your position. So let's imagine you've bought three lots. Each lot
represents a million dollars worth of British pounds, for example. And you're hoping that
the object that you bought is going to up in value, and that you're going to make a
profit. However, it might go down in value, and you might make a loss. There are two kinds
of stops, and the loss stop is the more important one. What that says is, that you want to close
out your position and make only a certain loss. So, if you buy gold at nine hundred
dollars an ounce, you might give your broker a loss stop order at eight hundred and ninety
dollars, which says that if the price falls to eight hundred and ninety dollars, the broker
should sell back your position, so that you are out of the market. And of course, you'll
have taken a loss. But this is to protect you, because if you just kept on to your position
and it fell through..ninety, eighty, seventy, sixty, you could make a very, very large loss.
So the loss stop is to limit your loss. Profit stop, pretty obviously, is a way of getting
out of the market and taking a profit. So you might buy something, and you might give
the broker a loss stop and a profit stop order, so that the broker knows that if you start
losing money, he can stop it by activating the loss stop when it gets to the price you've
specified. And if things go well, and you make money, then you get the profit stop.
And the position is squared out of the profit stop. And the one last thing to keep in mind,
is that obviously you want your loss stop to be closer than your profit stop. There's
no point losing twenty dollars, making twenty dollars, losing twenty dollars, making twenty
dollars, losing twenty dollars. You want to run your profits and cut your losses. And
that means that if you buy, as in my example, if you buy gold at nine hundred, you might
have your loss stop at eight ninety or eight ninety five, but you might have your profit
stop at nine fifteen or nine twenty. Which means that, even if things, on average, every
second day move up or move down, or go against you, go with you, you wile making more money
than you lose if you can consistently set the profit stop further away than the loss
stop. Good luck. Be careful.