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STOP LOSS ORDER


A sell stop order is an instruction to sell at the best available price after the price goes below the stock price. A sell stop price is always below the current market price. A stop loss order instructs your broker to sell when the price hits a certain point. The purpose of the stop loss is obvious – you want to get out of the stock before it falls any further. It is one of the most difficult arts in swing trading.

A stop loss order works like this: You tell your broker you want a stop loss order at a certain price on the stock. When, and if, the stock hits that price, your stop loss order becomes a market order, which means your broker sells the stock at the best market price available immediately.
                                          

For example :If an investor holds a stock currently valued at Rs. 250 and is worried that the value may drop, he/she can place a sell stop order at Rs. 246. If the share price drops to Rs. 246, the broker will sell the stock at the next available price. This can limit the investor's losses (if the stop price is at or below the purchase price) or lock in some of the investor's profits.

 

ADVANTAGES:

  • It can prevent the small loss from becoming a disastrously large one.
  • It safe you from the unexpected news which can come out of the blue and dramatically affect a stock's price.
  • It saves the individual from mental shock and gives emotional support also.
  • The beauty of the stop-loss order is that it costs nothing to implement. Your regular commission is charged only once the stop-loss price has been reached and the stock must be sold.
  • It gives the general market direction and investment psychology of the market.
  • The proper use of Stop Loss Techniques is crucial to preserving your profits.
  • Safe and secured investment of funds.
  • It gives the deep knowledge of financial soundness of the stock of different company.
  • You don't have to monitor on a daily basis how a stock is performing, especially handy when you are on vacation or in a situation that prevents you from watching your stocks for an extended period of time.
  • It gives the trader greater flexibility that may fit his trading style where adjustments can be made according to changing market conditions. This requires thorough understanding of price action to be able to use this flexibility.



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