How Much Stock to Buy and How to Buy It 1. 56 2. 3. If you had bought each share of XYZ Company's stock for $10, you obviously couldn't put a sell stop order on it for $20, since by definition the stock meets that criterion as soon as you purchase it. To deal with that, most investors give progressively higher sell stop orders as the price of the stock continues to rise. So, upon purchasing the stock, you would place a sell stop order with your broker for, let's say, $9. Once the price of the stock rose to $12, you would place a sell stop order for $11, and so on. If your stock is a volatile one, you could be shooting yourself in the foot without knowing it. As is often the case with volatile stocks, a stock may drop in the morning but rise later in the day. For example, should the price of XYZ drop below the sell stop order price in the morning, your broker will try to sell it. Should the price jump in the afternoon as everyone notices the price drop and thinks the stock is a bargain, you may lose out on the price increase--because you may no longer own that particular stock, thanks to your extremely efficient broker. In each of these transactions, remember that service charges would apply, and we've dis- cussed how these can quickly eat away any or all the profits you may have actually made with your trading. A buy stop order is a little more complicated since short positions are involved. Should you need a refresher, a short position works like this. Say the price of XYZ Company stock is at $10. You believe the price will go down to $5. A short position will allow you to actually make money from the decline in the stock price. You would "borrow" 10 shares of XYZ Company and sell them at the price of $10. When (if) the price did actually drop, you would purchase 10 shares at $5, return them to the market where you borrowed them, and pocket the $50 difference. A buy stop order would function to keep you from losing money in this transaction too. Say you have borrowed and sold the stock, and the price drops to $5. You place a buy stop order with your broker, telling him or her to purchase the 10 shares if the stock price rises to $6. Although you will make less than in the $5 example, the buy stop order will keep you from losing even more if the price of