Sell XYZ short 20 stop 20.50

Someone borrows stock XYZ (presumably from his broker) and sells it for $20 hoping to buy it back cheaper. Said person sets a stop loss at $20.50 at which he will buy the stock back at a loss.

The person entering this order is speculating on a price decrease of stock XYZ. Note that this is a particulary risky trade and the loss can exceed $0.50 per share by a large amount.

The first order is for the purpose of shorting the stock at $20 based on the expectation (hope?) that share price will drop, enabling the shorter to cover at a lower price (buy the stock to close the position). The order to go short will be executed if the bid price of the stock is at $20. If lower, the order will not be executed. If higher, one will get the higher price.

After the short position is taken, the second order is a stop loss order designed to limit the loss on the shorted stock should share price rise instead of drop. It is placed at $20.50 with the intent of limiting the loss to 50 cents. However, if the stock gaps up and never trades at or near $20.50, the trader could end up paying a little or much more than $20.50.

Shorting stock should only be done by experienced traders.

It simply means,

1. the person shorted at 20 bucks

2. don't forget, if the price goes down (say to "18") the person makes money (2 bucks in the example)

3. if the price goes UP the person LOSES money

4. don't forget, if the price goes UP the person is LOSING money. so, if it goes up too much, the person would probably "give up" on the trade - see? they'd say "ah well, i've lost 3 bucks (for example), that's enough, I'll close out the trade, take the loss, and move on with life..." It makes sense?

5. they're putting in a so-called "stop loss" order {aside - they should be called "try your best to minimize loss order" - the name is very confusing}. all that means is: IF the price unfortunately goes up to 20.50 (see point 3), the brokerage will automatically put in an order to dump the trade no matter what.

so that's it

Note that putting in a stop loss order so close to the price you paid, is, well, it's one sort of risk. Since prices "jiggle up and down" a lot, it's very likely the automatic stop loss order would be triggered.