What Is Stop-Loss in Stock Market? How Is This Order Given? Learn

What is Stop-Loss in Stock Market? How is this order given? Learn the complete method.

Stop Loss is the price at which you sell your shares. By selling the stock at the stop loss price, you avoid huge losses. Actually, you fix the limit of possible loss in stock at its current price.

Only after this do you put a stop loss in stock, which reduces your loss.

However, the stop loss is used to protect you from losses during stock market volatility, The inventory marketplace is essentially pushed through emotion.

In such a situation, the amount of profit you get from investing in shares, the same loss can also happen. Explain that, stop loss is a means of reducing this loss.

Another advantage of setting a stop loss is that if you do not trade regularly and cannot monitor your investments regularly, then it can prove to be beneficial for you.

Whereas, a stop loss can actually save you a lot of losses in this condition.

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What is Stop Loss and Stop Loss Order?

If you have a fear that the price of a stock will move against your trade and you are not ready to take a lot of risks, you can place an order in advance to buy or sell a stock at a pre-determined price, also known as a stop- This is called a Stop Loss Order.

For example, if you have bought a stock at Rs.100 and you want to limit the loss to Rs.5 per share, you can place an order in the system to sell the stock as soon as the stock moves to Rs.95.

Such an order is called a ‘Stop Loss Sell Order’. On the other hand, let us tell you that if you have a short position in a stock of Rs 100 and want to limit it to Rs 5 per share.

As soon as the stock moves up to Rs 105, you can place an order to buy the stock in the system. Such an order is known as a Stop Loss Buy Order.

What is Stop Limit Order?

Stop-limit orders are similar to stop-loss orders, but they come with a limit. In the case of a stop-limit order, there are two specified prices, a stop price or trigger price and a limit price.

When the inventory reaches a targeted rate, it triggers the alternate as a restricted order and trades most effectively at that rate or better.

If you have bought a stock at Rs.50 and want to limit the loss to Rs.45, you can place a sell-stop loss order with the limit price and trigger price.

Notably, the trigger needs to be triggered before you place the order, as the trigger price is higher than the limit price. Whereas, this order gives you a range of stop-loss.

For example, if there is a range of Rs.0.10 i.e. 10 paise, then you can keep the trigger price at Rs.45 and the limit price at Rs.44.90.

But, when the price starts at 45, then the sell limit order is sent to the exchange and your order is executed at the next available bid price above 44.9.

Your stop loss order can be executed at or above 44.90 but not below 44.90.

Stop Loss Order Profit.

Stop-loss orders are ideal for investors or traders who want to avoid monitoring stocks on a daily basis and limit their losses.

Let us tell you that the limits are pre-set and the trade is triggered automatically. Furthermore, stop-loss orders prevent emotion from getting in the way of buying or selling a stock.

This prevents losses from piling up and helps you to take the most optimal trading decision without any emotion.