January 19, 2009
Insider stock trading – This is a favorite maneuver of margin buyers.
An order to buy, say, at 70, is accompanied by an order to "sell at 67 stop." If the stock advances, the stop is moved up a reasonable distance behind it. If it drops and the buyer is sold out, bis loss, hopefully, is minimized to $3 a share. On the short side, the stop serves the same purpose. If you have sold Nickel short at 110 and it is now at 104, your six-point profit can be somewhat protected by a stop order to buy at 107. Should the decline continue, the stop can be lowered behind it.
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