Stop Loss Order
A stop loss order is an instruction to automatically sell a stock if its price falls to a set level.
Quick Reference:
Limit losses. Activated at chosen price. Protects capital.
May sell at worse price if market gaps.
Expanded Explanation:
Stop loss orders are sefety nets for investors. By setting a price below your purchase cost, you ensure that if the stock falls too far, you automatically exity before losses grow too large. For example, if you bought at $10 and set a stop loss at $8, the broker will sell your shares if the price hits $8.
This strategy prevents emotional decision making and enforces discipline. However, stop losses are not perfect. In fast moving markets, the stock may gap down below your stop price, meaning you sell lower than expected. Beginers can use stop losses as a way to manage their risk, but should be mindful of setting them to close and being sold out on normal price swings.