What Is Stop loss?

Stop loss is a risk management tool used by investors and traders to limit their potential losses on a trade.

Stop loss can be implemented by

A stop loss order is an instruction to automatically sell a security or other asset when its price falls to a certain level, known as the stop price.

For example, if an investor buys a stock at $50 per share and sets a stop loss order at $45 per share, the stop loss order will be triggered if the stock falls to $45 or below. At that point, the stop loss order will automatically sell the stock, limiting the investor’s potential loss to $5 per share.

Stop loss triggers can be particularly useful in volatile markets or when trading more speculative assets with higher levels of risk. By setting a stop loss order, traders can limit their exposure and losses in the event that the market moves against them, while still allowing for potential gains if the trade is successful.

It’s important to note that stop loss orders are not foolproof and can be subject to market fluctuations and gaps in trading. In addition, stop loss orders can be triggered during periods of high volatility or sharp price movements, resulting in a sale at a price below the stop price. As with any investment strategy, it’s important to carefully consider the risks and benefits of using stop loss orders and to use them in combination with other risk management tools and techniques.

See also

TradingStrategy.ai operated by Trading Strategy Operations Ltd., Victoria, Mahe, Seychelles.