So you might not know what a stop-loss order is. But it’s all good, because in the 5-10 minutes it will take you to read our story today, you’ll learn all about them. In brief:
A stop-loss order is designed to protect investors by triggering a sale once a stock reaches a certain target. The trades are computer-activated and are based on criteria set up by the investor in advance.
For example, an investor who owns a stock trading at $50 could set up a stop-loss order at $40. But if the stock is falling quickly it could blow right through $40; it might next change hands for $30, $20 or even one penny, and that is where the trade would be executed.
But here’s where it gets real. Gary Pinder, an individual investor in Maryland estimates he lost 10% of his net worth solely because of stop losses backfiring on May 6.
He explains: “When I first started working, I hoped to have the option to retire by age 50. The bursting of the dot-com bubble probably put us back to 55. The 2008-2009 crash put us back to age 60 or so. And now we’ll maybe have to work an extra year, or just live with less money whenever we do retire.”
Data on stop-loss orders is relatively scarce and the SEC is looking into how they folded into the flash crash. Should be interesting to see how it all shakes out.
Tuition continues to soar, but there might be some relief for borrowers grappling with student-loan debt: federal income-based repayment programs. Many borrowers may not be aware of them.
Mysteries are solved in my story about student loan income-based repayment programs in today’s WSJ Weekend Investor section.