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VIDEOMarket Lingo: Stops
Stops are about risk management--reducing your potential for loss.
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Expanding on the Minyanville dictionary to explain the jargon frequently used by Minyanville professors on the Buzz.
Toddo notes that he was stopped out of a position in Goldman Sachs (GS). A stop is a predetermined price level that will cause you to exit your position.
Why set a stop? Stops are about risk management--reducing your potential for loss. Left to their own devices, individuals are usually reluctant to exit losing positions. Stops remove emotion from the process and help maintain discipline to cut losses while they're small.
If you have a long position, then you would set a ‘sell stop’ somewhere below the current price. If price declines to the stop level, then you would sell the stock to exit your long position.
If you have a short position, then you would set a ‘buy stop’ somewhere above the current price. If price increases to the stop level, then you would buy the stock to exist (or cover) your short position.
Stops are one of many tools for actively controlling losses.
Look up other terms at the Market Lingo Library
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