6. What is stop loss order, where is it used?, Very important in the stock market

Stop Loss order

Stop loss is designed to protect the investor from loss. They can sell the stock once it reaches a particular level. This proves to be very helpful for investors in many ways.

There are many technical terms used in the trading of shares. One of them is the Stop-Loss Order. It is used to avoid loss or profit booking in times of fluctuations in the stock market. Come, let us know some important things about it here.

Importance of stop loss order

  1. A stop loss order is an order that investors place on a broker. This order is placed when a stock reaches a particular price. This order is placed to buy or sell shares at this level.
  2. Stop loss is designed to protect the investor from a loss. They can sell the stock once it reaches a particular level. This proves to be very helpful for investors in many ways.
  3. In intra-day trading, the buyer wants to end the day by selling his deal with a profit. However, when the share price goes down, the trigger of stop loss is suppressed and the deal is settled at the same price. This helps to limit the damage.
  4. The advantage of stop-loss is that investors don’t must continuously monitor their holdings. other than this, no additional cost is additionally charged for setting a stop loss.
  5. An additional good thing about an order is that it allows decision-making to be free from any emotional influences. People tend to “fall in love” with stocks. for instance, they’ll maintain the fallacy that if they furnish a stock another chance, it’ll come around. genuinely, this delay may only cause losses to mount.
  6. At the tip of the day, if you’ revisiting be a successful investor, you’ve got to be confident in your strategy. this suggests carrying through together with your plan. The advantage of stop loss orders is that they will facilitate you to stay track and forestall your judgment from getting clouded with emotion.
  7. Finally, it is vital to appreciate that stop loss orders don’t guarantee you’ll make money within the stock market; you continue to need to make intelligent investment decisions. If you do not, you’ll lose even as much money as you’d without a stop-loss (only at a way slower rate).

Disadvantage of Stop loss order

Its disadvantage is that the stock price can activate the stop price in a short period of time. This automatically leads to a transaction. For example, if a trader takes a share of Rs 300 and imposes a stop loss of Rs 290, the stock will be sold automatically as soon as it touches this level. The thing to note here is that stop loss orders can be for both buying and selling.

Stop limit order

Stop-limit orders are like stop-loss orders. But as their name states, there’s a limit on the value at which they’ll execute. There are two prices per a stop-limit order: the stop price, which can convert the order to a sell order, and also the limit price. rather than the order becoming an order to sell, the sell order becomes a limit order that may only execute at the limit price or better.

Of course, there isn’t any guarantee that this order will be going to be filled, especially if the stock price is rising or falling rapidly. Stop-limit orders are sometimes used because, if the value of the stock or other security falls below the limit, the investor doesn’t want to sell and is willing to attend for the price to rise back to the limit price.

Many investors will cancel their limit orders if the stock price falls below the limit price because they placed them solely to limit their loss when the worth was dropping. Because they missed their chance to urge out, they’ll simply watch for the worth to travel duplicate. they’ll not wish to sell at that limit price at that time just in case the stock continues to rise.


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