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A sell plus is an order instructing a broker to sell a given security at a price that is above the market price at the time the order is placed. This type of order is not executed until the price reaches the rate specified by the investor. Should the security fail to reach that price, the investor has the option of either killing the order or replacing it with some other type of limit order.
Specifically, a sell plus transaction takes place when the investor specifies a sales price that is not lower than the amount of the most recent sale. The idea is to make sure the investor does realize a return from the investment, since the sale price specified is typically higher than the price paid to acquire the security. While a sell plus strategy does specify a price that must be reached before the securities are sold, the order does not usually include any type of time limit. This means that the order may be placed with a broker and allowed to remain active for any period of time the investor desires.
Since a sell plus represents a transaction that will take place only if certain circumstances materialize in the marketplace, the investor placing the order has the ability to rescind the order any time he or she wishes. At times, this may prove to be the most lucrative course of action. For example, if an investor submitted a sell plus on a given stock that has a current price of $10 US Dollars (USD) and a sale price of $15 USD, the broker will not execute the order until that sale price is reached. In the interim, if the investor finds evidence that the current stock price is likely to double within the next few weeks, he or she may rethink selling the shares once the price reaches the $15 USD mark. Killing the sell plus order and holding onto the shares until they double in price would significantly increase the return generated in comparison to selling the shares at the sell plus price.
When utilized to best advantage, a sell plus can aid investors in generating what they consider equitable returns on investments while managing to protect investors from at least some amount of market volatility. The designation of a sale price that is more than the current market price means that at least some return will be generated. Should the shares reach that sell plus price for a short time then begin to drop once again, this strategy allows investors to execute the order while the price is at the higher level and get out before the price drops and all profits are lost.