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What happens if you can't check your shares for a while - how do you make sure you don't to miss out on a rise in the price? The answer in all cases - use a price limit.
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There are various types of limit and several ways to use them. Here you'll learn more about how they can work for you.
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general points
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It's important you choose the right type of limit to meet your objective. And remember that once you've set a price limit, your instructions will be carried out if the market price meets your limit criteria within the time period you've selected.
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Give careful consideration to the level at which you set your Stop-Loss or Tracking Stop-Loss triggers … too fine a level from your purchase or target price and the blips in the share price that occur during the day could trigger a sale that you hadn't intended.
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It's always a good idea to keep an eye on your limit orders to ensure they remain valid and realistic. That's why you can set limits for up to 365 days at a time - if your order hasn't been dealt in that time you might want to change the limit. Alternatively, you can renew it at the same level for a further period.
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If you want to check anything before placing your limit order, our dealers will be pleased to help - call them from 08:00 to 18:00, Monday to Friday on 01296 41 42 43.
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buy / sell price limits
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An easy one to explain - they do just what they say on the tin!
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Buy and sell price limits are the basic limits - there are more advanced options which we'll explain later. The main benefit of setting a price limit is that it gives you certainty of the highest price you will pay when buying, and the lowest price you will receive when selling. You can use them to sell all your shares in a company, or just some of them.
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So, if you want to make sure you only pay up to your selected price for a share - set a buy limit.
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Let's say you are considering buying a share which is trading at 550p. You read a tip in the newspaper, do your research and see that the consensus view is for a target price of 520p: you decide to invest £500.
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Put a buy order on your account to invest £500 and set a buy limit of 520p for 30 days.
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When the 'offer' price for the shares drops to, or below, your target of 520p, your buy limit will trigger and we'll buy the shares.
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If the price doesn't fall to your target price of 520p by the time your limit expires in 30 days' time, the order is cancelled.
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Similarly, to ensure you get at least the price you want when selling shares, set a sell price limit.
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You own 500 shares in Company A, trading at 800p per share.
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Your research suggests that prospects are improving in the short-term and you want to take advantage of any increase in the price to sell. You decide to sell if the price gets to 850p
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Put an order on your account to sell your 500 shares and set a sell price limit of 850p.
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When the 'bid' price for the shares rises to, or above, your target of 850p within your 30 day order period, your sell limit will trigger and we'll sell the shares.
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It is important to remember that, when using our 'batch' dealing option your limit order is only monitored at each of the three daily dealing sessions (09:00, 13:00 and 16:00, Monday to Friday excluding bank holidays. Even though the share price might meet your price limit during the trading day, if it is outside your limit at the 'batch' dealing times your order won't be completed.
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Also, bear in mind that newspapers and other sources typically only show a 'mid' price for a share. In reality the market deals at two prices - the 'offer' price at which shares are sold to you, and the 'bid' price at which shares are bought from you. For some shares the difference between these two prices (the bid/offer spread) can be quite wide: do ensure you set your price limit against the appropriate price.
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You can set a buy or sell price limit as either a value (the amount of money you want to invest, or raise from a sale) or as a number of shares. And when selling, you can choose to sell either some or all of your shares
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Finally, if you're placing an order outside market hours, to be dealt shortly after the market opens, it's a good idea to set price limit on it. This is because prices can be more volatile in the period just after the market opens, so using a limit ensures you're not caught out by 'rogue' prices as marketmakers sort out their trading positions.
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(This doesn't apply when you place an 'immediate' online order during this early trading period because we'll always give you a price quote to accept or reject. If you feel the price isn't what you want you can then reject it and either add a limit or try again later.)
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stop-loss limits
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Stop-Loss limits can be used to:
- limit potential losses on a share you've just bought
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Even though you've done your research before buying, it's not unusual for a share price to go down before it goes up. And sometimes you just call it completely wrong, or the whole market suffers a downturn.
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When buying a share it's good practice to consider at what point you'd sell if the price were to fall - in effect, the maximum loss per share you'd accept before cutting your losses and moving on. Don't be tempted here to set a sell limit, because the current price will be higher than the target price you'd just set, the shares would sell straightaway - not what you wanted at all!
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You could just keep an eye on the share price, either by checking regularly or using a price alert. But it's here a stop-loss limit comes into its own.
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Set a stop-loss limit at the time of buying and you've protected yourself against the price falling lower than your 'floor' without having to continually keeping an eye on the share price. It works by only selling the shares if the price falls to or below the price you've set, rather than selling as soon as the price starts to fall towards it: so now, you'll hold the shares until your 'floor' is breached.
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Let's say you buy a share at a price of 105p and it initially drops back but then rises to peak at 135p before falling back again. We've illustrated the fictional price pattern of this stock in the chart below.
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If you set a Stop-Loss at 100p your shares would be sold as soon as the price drops to that point. In this example, therefore, you'd hold the shares until day 50 and then sell at 100p, resulting in a loss of 5p per share.
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Of course, if you'd prefer to have a chance to review your decision before automatically selling if your stop-loss limit was reached, set a price alert instead'
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- protect gains on shares you hold already.
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If you've some shares you bought a while ago it could be you are already sitting on a profit. If you want to carry on holding them, but sell if the price were to fall back, a stop-loss limit is the easy answer.
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Again, a normal sell price limit won't work in these circumstances - it would sell the shares too soon - but a stop-loss will do the trick. Rather than monitor the price continually, set a Stop-Loss trigger and your holding will be sold should the price fall to, or below, the limit you set.
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Let's say you bought a share at a price of 105p and it has risen to a current price of 150p. You don't want to sell now, but having made a profit of 45p a share you want to ensure that you hang on to at least a 25p per share gain.
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Set a stop-loss limit of 130p (105p purchase price plus 25p gain). So long as the price remains above 130p you'll keep the shares. But if it does fall to or below 130p we'll sell them for you.
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Remember, you can set your limit for up to 365 days, and as either a number of shares to sell, or an amount of money to raise.
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tracking stop-loss limits
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Tracking stop-losses take the concept behind the stop-loss limit a bit further. Rather than simply ensuring you contain any loss to a certain level, here you can follow a share price as it rises.
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Of course, you've no way of knowing how high it will go, so you set a margin below the latest peak price at which you would sell (e.g. 10p). That way you always follow a share price upwards, lock-in on the peak price then sell if it falls by your margin. That way you've the added advantage of being able to lock-in profits after the share price falls back from its peak. The following chart illustrates this point:
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Using the example from the stop-loss section, you buy a share at a price of 105p and it initially drops-back but then rises to peak at 135p before falling back again.
If you set a Tracking Stop-Loss to shadow the share price by 10p you would hold the shares as the price rises and then sell on day 27 at 125p (10p off the peak of 135p). So you actually lock-in a gain of 20p per share.
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limit safeguard
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Protect your Stop-Loss or Tracking Stop-Loss limit orders against wide price spreads by using the Safeguard feature.
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As we said earlier, when setting your trigger levels you will want to bear in mind the bid/offer spread of the particular share. In some market conditions, and particularly at the time of the market's opening or closing, bid/offer spreads can widen, activating a trigger. To avoid this, on shares with a mid price of 20p or more, you can choose to Safeguard your Stop-Loss or Tracking Stop-Loss triggers.
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This chart illustrates how it works.
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The Safeguard prevents a trigger from activating if the stock's bid/offer spread is outside an acceptable range, as illustrated in the chart above. Because it is not unusual to see wider spreads on lower priced stocks compared to those with a higher price, the acceptable range narrows as the stock's price increases.
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It operates by calculating the spread as a percentage of the 'bid' price and then checking to ensure it falls within an acceptable range. Starting with a maximum acceptable spread of 15%, the range reduces to 5% at a share price of 100p or more.
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Safeguards can be set at the time of placing your Stop-Loss or Tracking Stop-Loss order, or can be added to an existing, un-executed order.
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alerts
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When you place a limit order, as soon as the share price meets the criteria you've set, your buy or sell instruction will be carried out. But there might be occasions when this is not what you want.
Rather than set a limit, therefore, you can use an Alert.
With an alert, we simply advise you that the share price has met your criteria - that way you can choose whether to act or not. You can ask us to let you know when a share price has fallen to, or risen to, a certain price - or both.
You can receive your alerts in two ways - by email and / or by highlighting that share in your account. And if you can forward emails to your mobile phone, ur b abl 2 gt ur alerts by txt. Once alerted you can decide whether or not to act.
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