Stop-Loss Orders

A stop-loss order is an instruction to automatically sell a security once it reaches a predetermined price. The purpose is to limit potential losses if the trade moves against you.

How It Works

You choose a stop price below your purchase price (for a long trade). If the market price hits that level, the broker executes a market sell order. This helps exit losing positions quickly without needing constant monitoring.

When to Use

• Day trading and swing trading for defined downside control.
• Long-term investing to guard against unexpected drops.
• When you cannot actively monitor the market.

Limitations

• May sell at a lower price than expected during high volatility or market gaps.
• Generally does not execute in pre-market or after-hours sessions.

Disclaimer: For educational purposes only. This is not investment advice. Trading involves risk.