Automatic stock market selling is a science, and it’s based on hair trigger systems geared to stock prices. It’s used widely by managed funds and day traders. These systems have been evolving since the 90s as a standard professional practice, and for those just starting to explore market behavior, they’re also a volume control, in which sellers lock in a price. A big volume of sales at a certain price isn’t some sort of mental aberration, it’s a considered process of profit making and loss prevention.
Automatic selling basics
Automatic selling is pretty simple. The buyer of stocks selects a price for sale, above and/or below the purchase price. The reason for these selections is to obtain a given profit margin, and to ensure loss minimization.
Making a profit
For example: A million units of stock is bought for $1.00. The seller sets a sale price of $1.23 as the trigger. The sale is conducted automatically, through the stock software. The seller doesn’t even need to look at stock prices. They’ll be notified when the sale is made.
The price is calculated on volume and on charges incurred for purchase and sale. The $1.23 includes 20% profit on the principle, and 3% to cover charges. That’s a simple $200,000 profit, clear.
Avoiding risk- Stop Loss orders
Traders don’t want to take any losses if they can help it. They prefer to maintain their working capital in one piece, and fast stock movements can happen at any time. There are various ways of hedging on investment risks, but automatic selling is by far the simplest and quickest way to avoid excessive losses, particularly in volatile markets.
This is one reason for sudden large volumes of sales on global markets.
For example:
The million units of stock above is bought by a managed fund for $1.00 is based on existing profit for a fund. The fund manager is developing their capital, and this $1 million dollars isn’t something they want to lose. The transaction is now based on risk management principles as much as a desire for further profits. The fund manager sets a Stop Loss sale price of 95 cents with the broker, (either directly or using supplied software), as a below the line sale price, to reduce risk from the outset, as well as an above the line sale price of $1.23 to get the margins described.
It’s a very good idea to consider the Stop Loss option in particular from the moment of purchase. Everyone takes some sort of loss on the stock market at some point, and minimizing the damage is definitely the best option for preventing damage to your capital base.
This methodology was developed by traders who were always at risk of a run on stocks even in the course of normal share trading . A trader holding any portfolio, including all blue chips, is always vulnerable to a major hit on a particular stock which can undermine an otherwise profitable trading portfolio quite easily.
Automatic selling is simple, quick and safe way of protecting your profits and your investments from loss.
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