A stop-loss order is an order that is placed with a broker to sell a security when it reaches a certain price. This is done in order to limit the amount of loss that can be incurred on a security. For example, if you purchase a stock for $50 and place a stop-loss order at $45, then your broker will sell the stock when it reaches $45. This will limit your loss to $5 per share.
Stop-loss orders can be placed with a broker for any security that is traded on an exchange. This includes stocks, bonds, ETFs, and even options. There are a few different ways that a stop-loss order can be placed.
A stop-loss order can be placed as a day order or a GTC order. A day order is an order that will expire at the end of the trading day if it is not filled. A GTC order is an order that will remain open until it is either filled or cancelled.
Stop-loss orders can also be placed as market orders or limit orders. A market order is an order to buy or sell a security at the best available price. A limit order is an order to buy or sell a security at a specific price.
There are a few different advantages to using stop-loss orders. The first is that it can help to limit your losses on a security. This is especially important if you are not able to watch the security all day. The second is that it can help you to take emotion out of the equation. When you know that you have a stop-loss order in place, you will not be as tempted to sell if the security starts to decline.
There are a few things to keep in mind when using stop-loss orders. The first is that you should always have a plan in place for how you will exit a losing position. The second is that stop-loss orders are not guaranteed. This means that if there is a sudden drop in the price of a security, your stop-loss order may not be filled at your desired price.
Stop-loss orders can be a helpful tool for investors. They can help to limit losses and take emotion out of the equation. However, it is important to remember that they are not guaranteed.