To answer this question, let’s look at some different situations.
To Sell A Script Order
You bought a stock for $ 10, but I want to be able to protect against loss, so you decide that you want to enter a sell order if the price reaches $9.50. However, deep down, you believe that stock goes up and you want to lock in a profit of $11, so you want to enter a second order to sell at $11.
The problem is, You can’t use this strategy. Why not?
Stop orders vs sell orders
First things first. Order You should try to get in at 9.50 $price (reduce down) – stop orders, not limit (or sell) order. This is important because if You enter the order as a limit order for $9.50, it will be sent to the exchange and will be executed at the best available price, which should be around 10$. It does not carry out the strategy of collar that you are trying to create.
The second reason your broker will not allow you to enter two sell orders on your account that You can’t have more sell orders in your account than the number of shares You own. This restriction is designed to protect you.
If there is you have in mind is very unstable, for example, and will reach $11, and then consistently falls last $9.50 on the same day, then you effectively short sold without proper registration as a short sale.
Avoiding unnecessary risk
At the same time, You can’t cancel one of the orders after another was filled. Although it sounds reasonable, brokers believe this impact is unnecessary and will not allow you to take this position in the first place.
Also, as most of them are limited orders are processed manually by traders, they do not have the time to watch the stock price in order to decide in which order correctly and then still fill the order. Then there would be no way for them to prevent your unnecessary risk.
Custom Computer Trading Platform
One alternative that some companies will provide greater flexibility in ordering the custom option computer trading platforms. This software distributed by some active trading discount brokers for their customers that allows customers to enter various orders according to their investment strategy.
To prevent damages/profits is one of the types that you can enter using this platform, but the disadvantage is that the order is effective only when you connect to the network and the computer—that is, the software monitors the market and will send the appropriate order if necessary. No order is sent to market until the appropriate triggers are executed, for example, if you encounter problems connecting to the Internet from your computer, Your order will not be executed.
To learn more about online brokers, watch 10 things to consider before selecting an online broker and start investing with 1000 dollars.