Stop-Loss Order
| A stop-loss order is an investing tool that allows investors to set a minimum trading price that triggers an order when it’s reached. For example, let’s say an investor buys a stock for $50 and sets a stop-loss order at $45. If the stock price falls to $45, the stop-loss order is triggered and the stock is sold. The investor incurs a loss of $5 per share, but the loss is limited to the $5 stop-loss price. Stop-loss orders are designed to limit an investor’s loss on a security position. They are typically used by investors who cannot watch their positions constantly and need to set a price at which they are comfortable selling. Stop-loss orders are not foolproof. In a fast-moving market, a stop-loss order may be triggered at a price that is lower than the investor’s desired sell price. And, in a volatile market, a stop-loss order may be triggered multiple times before the investor’s desired sell price is reached. Despite these potential drawbacks, stop-loss orders can be a helpful tool for investors who want to limit their losses on a security position. |
Share this glosssary
