Stop Loss

Stop loss is a buy or sell order which gets triggered when the stock price reaches a specified price known as the stop price. Stop loss is extremely useful for the investor who doesn’t want to monitor the security on a continuous basis. The other advantages of using stop loss are to offer protection from excessive loss and to enable better control of your account. One of the disadvantages of the stop loss is that it is mostly a market order and hence, it exaggerates the loss.

Example

Suppose you buy the stock XYZ at $50 per share that you feared might drop in price, you could use a stop order to sell if the price dropped below $45 per share to protect yourself against a larger loss.