Stop Loss is an English word meaning ‘stop loss’. It is necessary to take quick decisions and give commands in cases where there should be no loss in stock market transactions. In such cases, some predetermined conditional orders can be applied to reduce the risk. Stop loss is one of them. It is a kind of stop loss.
It is an order type that allows you to sell your holdings at a certain rate with a stop loss order when the price drops to a certain point during the purchase. In this way, investors are prevented from incurring more losses than they can afford. Stop loss is a protective measure traders use to manage their risk.
But it may not always protect the investor. Because, the order may not be executed at the given level. In sharp price movements, no transactions can be made at the desired price. In this case, the stop loss cannot protect the investor. The most important point to be considered should be whether your order will be executed at the right point. If the market falls too quickly, the stop loss order may not be executed.
How to Place a Stop Loss Order?
The stop loss order allows users to set the minimum profit amount or the maximum amount they can afford to lose on a trade. A limit order is automatically placed when a stop loss order is placed, even when offline or logged out. There are two types of stop loss orders. These are:
- Fixed Stop Loss Order: Fixed stop loss order is a type of order that serves to stop loss at a certain level before opening a trade. Investors, after calculating possible gains and losses, can set a stop loss and make their transactions more risk-free by taking them to a fixed range.
- Followed Stop Loss Order:The trailing stop loss order provides the ability to follow prices within a limit against an unexpected drop in the markets.
What are the Advantages of Stop Loss Order?
The advantages of the Stop Loss order for traders are as follows:
- When a long-term investment is made, there is no need to constantly examine the chart thanks to the stop loss.
- A stop loss is made according to a certain strategy. This prevents abandonment of strategy.
- The stop loss order can also be used just as a warning sign. Selling is not mandatory.
- The stop loss sells investment assets that have lost value and thus provides the opportunity to invest in other investment assets.
