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    What Is Stop Loss

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    vikalp123123
    A stop loss order is an order to buy or sell a security once its price reaches a specified stop price. There are two main types of stop loss orders: 1) A stop loss limit order allows the trader to set a limit on the price at which the order is executed, providing some control but risking non-execution if the limit is not reached. 2) A stop loss market order executes at the best available market price once triggered, giving no control over price but ensuring execution. Stop loss orders are useful risk management tools that can limit losses or lock in profits without requiring constant monitoring, though there are tradeoffs between control and execution certainty with different order types.

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    What Is Stop Loss

    Uploaded by

    vikalp123123
    297 views2 pages
    A stop loss order is an order to buy or sell a security once its price reaches a specified stop price. There are two main types of stop loss orders: 1) A stop loss limit order allows the trader to set a limit on the price at which the order is executed, providing some control but risking non-execution if the limit is not reached. 2) A stop loss market order executes at the best available market price once triggered, giving no control over price but ensuring execution. Stop loss orders are useful risk management tools that can limit losses or lock in profits without requiring constant monitoring, though there are tradeoffs between control and execution certainty with different order types.

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    What is Stop Loss

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    A stop loss order is an order to buy or sell a security once its price reaches a specified stop price. There are two main types of stop loss orders: 1) A stop loss limit order allows the trader to set a limit on the price at which the order is executed, providing some control but risking non-execution if the limit is not reached. 2) A stop loss market order executes at the best available market price once triggered, giving no control over price but ensuring execution. Stop loss orders are useful risk management tools that can limit losses or lock in profits without requiring constant monitoring, though there are tradeoffs between control and execution certainty with different order types.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    297 views2 pages

    What Is Stop Loss

    Uploaded by

    vikalp123123
    A stop loss order is an order to buy or sell a security once its price reaches a specified stop price. There are two main types of stop loss orders: 1) A stop loss limit order allows the trader to set a limit on the price at which the order is executed, providing some control but risking non-execution if the limit is not reached. 2) A stop loss market order executes at the best available market price once triggered, giving no control over price but ensuring execution. Stop loss orders are useful risk management tools that can limit losses or lock in profits without requiring constant monitoring, though there are tradeoffs between control and execution certainty with different order types.

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    What is Stop Loss?

    A stop loss is an order to buy (or sell) a security once the price of the security climbed
    above (or dropped below) a specified stop price. When the specified stop price is
    reached, the stop order is entered as a market order (no limit) or a limit order (fixed or
    pre-determined price).

    With a stop order, the trader does not have to actively monitor how a stock is
    performing. However because the order is triggered automatically when the stop price
    is reached, the stop price could be activated by a short-term fluctuation in a security's
    price. Once the stop price is reached, the stop order becomes a market order or a limit
    order.

    In a fast-moving volatile market, the price at which the trade is executed may be much
    different from the stop price in the case of a market order. Alternatively in the case of a
    limit order the trade may or may not get executed at all. This happens when there are
    no buyers or sellers available at the limit price.

    Types of Stop Loss order

    1) Stop Loss Limit Order


    A stop loss limit order is an order to buy a security at no more (or sell at no less) than a
    specified limit price. This gives the trader some control over the price at which the trade
    is executed, but may prevent the order from being executed.

    A stop loss buy limit order can only be executed by the exchange at the limit price or
    lower. For example, if an trader is short and wants to protect his short position but
    doesn't want to pay more than Rs.100 for the stock, the investor can place a stop loss
    buy limit order to buy the stock at any price up to Rs.100. By entering a limit order
    rather than a market order, the investor will not be caught buying the stock at Rs.110 if
    the price rises sharply.

    Alternatively a stop loss sell limit order can only be executed at the limit price or
    higher.

    Advantages and disadvantages of the stop loss limit order


    The main advantage of a stop loss limit order is that the trader has total control over
    the price at which the order is executed. The main disadvantage of the stop loss limit
    order is that in a fast moving volatile market your stop loss order may not get executed
    if there are no buyers/sellers at the limit price.
    2) Stop Loss Market Order
    A stop loss market order is an order to buy (or sell) a security once the price of the
    security climbed above (or dropped below) a specified stop price. When the specified
    stop price is reached, the stop order is entered as a market order (no limit). In other
    words a stop loss market order is a order to buy or sell a security at the current market
    price prevailing at the time the stop order is triggered. This type of stop loss order
    gives the trader no control over the price at which the trade will be executed.

    A sell stop market order is a order to sell at the best available price after the price
    goes below the stop price. A sell stop price is always below the current market price.
    For example, if an trader holds a stock currently valued at Rs.100 and is worried that
    the value may drop, he/she can place a sell stop order at Rs.90. If the share price
    drops to Rs.90, the exchange will sell the order at the next available price. This can
    limit the traders losses (if the stop price is at or below the purchase price) or lock in
    some of the profits.

    A buy stop market order is typically used to limit a loss (or to protect an existing
    profit) on a short sale. A buy stop price is always above the current market price. For
    example, if an trader sells a stock short hoping the stock price goes down in order to
    book profits at a lower price, the trader may use a buy stop order to protect himself
    against losses if the price goes too high.

    Advantages and disadvantages of the stop loss market order


    The main advantage of a stop loss market order is that the stop loss order will always
    get executed. The main disadvantage of the stop loss market is that the trader has no
    control over the price at which the transaction is executed.

    Conclusion
    Stop loss orders are great insurance policies that cost you nothing and can save you a
    fortune. Unless you plan to hold a stock forever, you should consider using them to
    protect yourself. 
     

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