How Electronic Trading WorksMillions of people trade billions of shares of stock every day on a collection of computer systems that are incredibly reliable and, very nearly, inerrant. Once the margin account is opened, a trader can borrow up to 50 percent of the purchase price of a stock. A day trader who sells short borrows a security and then sells it in the hopes of repaying the loan by buying back cheaper shares later on.
He may not even be able to control which securities are sold.To reduce the risks associated with trading on margin, day traders use stop-losses. A stop loss order is an order to sell a security at the market price as soon as it hits a predetermined level.
The advantage of a stop order is that a trader doesn't have to obsess over a stock's performance, knowing he has a measure of protection. The disadvantage is that the stop price could be triggered by a short-term fluctuation in a stock's price.
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