If you bought a stock at $20 that is now trading at $50, and you want to sell it if it drops to $40, thereby locking in a 100% gain, what kind of order should you place? You're describing either a "stop-loss" or "stop-limit" order. The "stop" activates the order if shares sink to a certain price -- $40 in this example. The stop-loss order immediately sells the shares at the best price it can, while the stop-limit will sell only if the shares are at $40 or above.
Here are the risks: If, perhaps because of bad news, the shares suddenly fall below $40 overnight and don't rise above that, the stop-loss will sell your shares for less than $40, while the stop-limit order won't sell the shares at all.
This article offers greater detail on these and other orders you can place with your brokerage. There's the market order, for example, which executes at the best available current price.
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- TD Ameritrade
- E*Trade
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- Fidelity
- Charles Schwab
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