A stop-loss order is a type of order that is placed with a broker to buy or sell a security when the price reaches a certain level. The main purpose of a stop-loss order is to limit potential losses on a trade by automatically selling the security when the price reaches a certain level.
Here's an example of how a stop-loss order might be used:
Let's say that you buy a stock at $50 per share and you want to limit your potential losses on the trade. You could place a stop-loss order at $45 per share, which would automatically sell the stock if the price drops to $45 or lower. This would help to limit your potential losses on the trade to $5 per share (the difference between the purchase price and the stop-loss price).
There are a few different types of stop-loss orders that can be used, including:
Standard stop-loss orders: These orders are triggered when the market price reaches the stop-loss price.
Trailing stop-loss orders: These orders are set at a certain percentage or dollar amount below the market price, and they move with the market price. For example, if you set a 25% trailing stop-loss order, the stop-loss price will move down with the market price, but it will not move up.
Guaranteed stop-loss orders: These orders are similar to standard stop-loss orders, but they are guaranteed to be executed at the stop-loss price, regardless of market conditions. However, these orders typically come with higher fees than standard stop-loss orders.
Overall, stop-loss orders can be a useful tool for traders who want to limit their potential losses on a trade, but it's important to keep in mind that they do not guarantee a certain price, and they may not always be filled at the exact stop-loss price due to market conditions.
0 Comments