Sometimes investors use stop-loss and limit orders with exchange traded funds to curb losses in their portfolio. However, it’s important to understand the difference between stop and limit orders.
With a stop order, the ETF will be sold when the price falls to a certain point. However, the stop order essentially becomes a market order and will be filled at the best price. Stop orders apparently caused some ETF investors to sell into the depths of the 2010 flash crash, although the SEC later cancelled these trades. [The Pro and Cons of ETFs]
A limit order, meanwhile, gives investors more control over their investment purchases and sales. The main benefit of a limit order is that the investor has total control over when, or what price, the ETF order will be filled. However, with all limit orders, the trade may not be executed if the stock or ETF does not reach the desired price. [5 Ways to Cut the Cost of Investing]
Consider using limit orders to manage losses. This will spell out the exact share price at which you want to sell. [The Art of the Sell]