Introduction to Stop Loss
Stop loss order which is also known as stop order or stop market order is an order which is placed in advance to buy or sell a security when it reaches a certain price point. Stop loss orders help to reduce or limit the loss of an investor on a position in the security. Stop loss orders can be used for both short term as well as long term trading.
Once the stop loss drops below the stop price, the stop loss order becomes the market order and is executed at the next available price. When the stop loss order is placed, it is an indication by the investor to the agent to sell the security at a pre-set price limit, once the security reaches this limit.
In the trading world, knowing financial terms like the stop loss order is very important. Through this article we will have a brief look at the stop loss order and get familiar with the basic concepts behind it.
What is the stop loss order?
Basically a stop loss order is an order placed to buy or sell an asset when it reaches a pre-decided price point which is called the stop price. Once the stop loss order drops down from the stop price, the stop loss order becomes the market order which is then executed at the next available price.
Stop loss order is often used by the traders and investors to protect the profits made by them by buying or selling the asset. Using the stop loss order is beneficial to the traders and investors in the sense that it removes the risk of an order not being executed in case it keeps falling as after dropping down from the stop price it gets converted into a market order and gets executed at the next available price.
