Traders to limit their losses by using stop loss.
What is Stop Loss ?
A stop loss is a type of order that investors or traders use to limit their potential losses in the stock market. It is an advance order that helps the traders to sell their shares if the share price reaches a specific price. It is used to limit loss or gain in a trade.
For Example
For example, let’s say Avinash buys 50 shares of Tata Steel at the price of Rs. 117
After some time, the share price falls to 115 rupees per share. Avinash wants to limit his losses, so he puts a stop-loss order at Rs.113.
If the price fell to Rs.113, then his broker will sell the shares for preventing further losses.
On the other hand, if the share price jumps to Rs.125 per share, then Avinash would want to hold on to his shares. Thus by placing the stop-loss to his trade, Avinash protects his trade by preventing potential losses.
Type of Stop Loss
Fixed Stop Loss
The fixed stop is a stop loss order triggered when a particular price is hit. Fixed stops can also be timed based and are most commonly used as soon as the trade is placed. This stop loss is majorly used in ALGO TRADING SYSTEM.
Trailing Stop Loss
A trailing stop loss lets traders set a predefined loss percentage that they can bear, when trading in the stock market. It plays an important role of managing risk and providing loss protection. Similarly, When the price of a stock moves either up or down, the stop loss also moves up and down respectively.
Importance of Stop-Loss Order
Stop-loss order effectively helps trader to manage their losses without having to monitor the market closely. It is particularly beneficial for risk-averse trader aiming to make substantial profits through stock market investments while minimising the stock market fluctuations. Stop-loss trading can be a valuable strategy for traders as it allows them to set predetermined exit points to limit potential losses, even when the exact high or low of a position is uncertain. Thus, if an investor holds his/her position for an extended period to earn higher profits, a price variation can lead to significant capital losses.
Point to Remember
Stop loss minimize of the trader.
where to place the stop loss depends on your risk taking—the price should limit your loss. Percentage method limits the stop loss at a specific percentage.
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Disclaimer: The information provided in this Blog is for educational purposes only and should not be construed as financial advice. Trading in the stock market involves a significant level of risk and can result in both profits and losses. Spider Software & Team does not guarantee any specific outcome or profit from the use of the information provided in this Blog. It is the sole responsibility of the viewer to evaluate their own financial situation and to make their own decisions regarding any investments or trading strategies based on their individual financial goals, risk tolerance, and investment objectives. Spider Software & Team shall not be liable for any loss or damage, including without limitation any indirect, special, incidental or consequential loss or damage, arising from or in connection with the use of this blog or any information contained herein.
