I am new at investing at stocks. I have an account with Ameritrade. I have AXL stock. Last week the stock was up to over $25.00 a share. I wanted to put a stop at $24.50, below the previous day low. Ameritrade would not let me place a stop at $24.50. Ameritrade said I had to place a stop below the bid price which was $19.00 a share. I don't understand this. The stock was worth over $25.00 a share, but I can't sell it at that price. I would have to sell it at $19.00 a share. I also don't understand the asking price. The asking price was $98.00 a share. If I wanted to buy more stock, why can't I buy it at $25.00 a share instead of $98.00 a share? (May 13, 2003)
For those not familiar with AXL, here is some background. The stock broke over its 200 day MVA three weeks back and did rally to over $25. It has since pulled back, but it is holding the 10 day MVA right at 25. It was not trading for $19 or $98 per share.
No doubt you were attempting to put in your stop order after or before the regular session. AXL is a NYSE stock, and what happens with these stocks after hours is that the specialist sets bogus bid and ask prices. For example, at this writing the stock is showing a bid of 0.01 and an ask of 99.72 while the stock closed at 24.95. Ameritrade does not allow you to base your stop loss on the last sale but on the bid currently listed.
There is a way around this but it involves using stop limits and buy limits versus a stop loss or buy stop. The limit says you are willing to sell at the price specified but not lower. In other words, if you set a stop limit and the stock gaps down below that price, you won't get stopped out on the first trade. You would only sell if the stock moves through your stop and trades at that price. This may or may not be what you want, but it would allow you to set the stop if Ameritrade allows stop limits still.
As for upside buys, you could set a buy limit at the price you want to buy the stock at. We do this quite a bit on stocks we want to buy and are confident about the volume. Say we see a stock moving on solid volume early and heading toward the breakout but we don't want to have to watch the screen all day. We set the buy stop and go about our business. If the stock hits the buy point and is traded, we are executed.
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