What is a Stop Loss?
1 min read
A stop-loss order is an order placed with a broker to shop for or sell a selected stock once the stock reaches a particular price. A stop-loss is meant to limit an investor’s loss on a security position.
Stop-loss orders are traditionally thought of as how to stop losses. However, another use of this tool is to lock in profits. In this case, sometimes stop-loss orders are mentioned as a trailing stop. Here, the stop order is about at a percentage level below the present market value (not the price at which you bought it). The price of the stop-loss adjusts because the stock price fluctuates. It’s important to stay in mind that if a stock goes up, you’ve got an unrealized gain; you do not have the take advantage hand until you sell. Using a trailing stop allows you to let profits run, while, at an equivalent time, guaranteeing a minimum of some realized financial gain .
The most important advantage of a stop order is that it costs nothing to implement. Your regular commission is charged just one occasion the stop-loss price has been reached and therefore the stock must be sold. One way to consider a stop order is as a free policy.
