Zerodha (Trading & Demat Account)
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Flat ₹20/trade Intra-day/F&O
Zerodha (Trading & Demat Account)
FREE Equity Delivery and MF
Flat ₹20/trade Intra-day/F&O
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Stop loss is an advanced order facility that helps you sell your stock if it falls to a predefined price. It is designed to minimize losses and is used by traders who are unable to constantly track the price movement of their securities.
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Stop-loss is a method of limiting the loss in a trade. It is an automatic order facility wherein the system executes buy/sell order on reaching a particular price point. Suppose an investor buys 1000 shares of a company at Rs 100 per share. He puts a stop loss at Rs 92 while buying the share. When the share price reaches Rs 92, the system will automatically sell the share at Rs 92 to stop the further loss.
A stop-loss order is used when an investor wants to limit the loss in trading beyond their capacity. An investor needs to set a trigger price for a stop-loss order. The order gets executed only when it reaches the trigger price.
Example
If an investor bought a stock at Rs 50, and wants to sell it off at higher price but cannot risk the loss of more than Rs 5, the trigger price can be set at Rs 45. This would ensure that the investor will not suffer a loss of more than Rs 5 as expected. The reverse would be the case when an investor has a sell position and wants to buy it at a limited loss of Rs 5, the trigger price can be set at Rs 55.
Stop-loss is an advance order type deisgned to limit losses by placing an opposite side order with a trigger price. It is designed for intra-day trading.
| Advantages | Disadvantages |
|---|---|
No need to constantly monitor the price movement of the stock. |
Short term fluctuation can trigger the trade. |
Helps in controlling losses in the event of a steep downturn in the price. |
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Helps investors in simplifying and speeding trading. |
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