Trading

What is a stop loss order? How does it work?

A stop-loss order is simply a Buy or Sell order that gets triggered automatically once the stock reaches a certain price. The aim is to limit or minimise the loss on a security (Buy or Sell) position.

For example, 10 qty of XYZ Ltd are purchased at Rs 315 per share. The shares are now trading at Rs 340 each. You are expecting the stock to hit Rs 350, but you do not want to take a huge loss if the market turns the other way. In such a case, you set a stop-loss order at Rs 325. If the stock goes down and touches Rs 325, the system will place the order automatically to sell your shares.

Was this article helpful?