How Can a Stop-Loss Order Benefit You?

When assessing a stock to purchase, indeed, there are innumerable facets to look into and scrutinize. However, while doing so, it becomes too easy to miss small, little things. And, a stop-loss order is counted in those little things.

What a majority of traders and investors may not realize is that stop-loss order can make a substantial difference to the entire trade. And what makes it more attention-worthy is that it can help almost anybody gain enough advantages. Read on ahead to discover the same.

Defining Stop-Loss Order

The stop loss meaning can be defined as an order placed with a broker to purchase or after the stock has reached a specific price. The entire concept of stop-loss order has been designed to restrict the loss of an investor on the security position.

For instance, if you set up the stop-loss order for 10% lesser the price at which you purchased the stock can restrict your loss to 10%.

How to Place Stop Loss Orders?

Essentially, this one is an automatic trade order that an investor gives to a brokerage. Once the stock’s price falls to a specific stop price, the trade is executed. Such stop-loss orders are basically designed to restrict the losses that an investor might incur on a position.

For instance, let’s assume that you own a long position on 10 shares of a certain company and you purchased them at a price of Rs. 300 per share. Now, the shares are trading at Rs. 325 each. Just so you can participate in future price appreciation, you decide to continue holding these stocks.

However, on the other hand, you don’t even want to lose the gains that you acquired so far. Since you have not sold the shares yet, your gains will be unrealized. Once they are sold, they become Realized Gains. After a brief review of the company’s data, you can then decide whether to keep or sell the shares in case the price falls to a specific below.

Rather than keeping an eye on the Market consistently, you can simply buy stop order to keep a tab on the prices.

Advantages of Stop-Loss Trading

• To begin with, one of the considerable advantages of stop-loss trading is that it doesn’t cost a bomb for implementation. A regular commission will be charged only when the stock has reached the stop-loss price, and the stock would have to be sold.

• Decision making, in here, is completely free from emotional influences. Since stop-loss order doesn’t allow another chance to a stock, going towards the road of losses will not be a possible option.

• With this trading, almost any strategy can work. However, only if you are aware of how to stick with one and you work more with your mind; or else, the stop-loss orders will be nothing but useless.

• Also, you don’t have to keep a tab on the stock performance every single day. This turns out to be extremely convenient if you are busy with something else or are on vacation.

Disadvantages

• One of the primary disadvantages of stop loss in share market is that even a small fluctuation in the price of a stock can activate the stop price.

• You don’t get to have any hard-and-fast rules as far as the levels of placement are concerned. This only depends upon the style of your investment; thus, losses or gains aren’t guaranteed.

• There are potential risks in these orders. While they may assure a price lim

  Conclusion

A stop-loss order is a seamless tool; however, several investors Fail to make the most out of it. Be it preventing losses or to lock-in profits, almost every style of investment is appropriate for this trade. But, apart from all the right things and advantages, you must keep in mind that stop-loss orders don’t guarantee that you will be making any money in the market. Thus, you would have to make intelligent and careful decisions while Investing. If not, you might end up losing more than gaining.