When deciding or contemplating about a stock buy most traders tend to forget to pay attention to the little factors in the trade that have the ability to make or break them. The stop loss order is a perfect of example of such a thing; it is a tool that when used effectively can be beneficial to anyone for various different reasons.
What Is a Stop-loss Order?
A stop-loss order can be defined as an order that is made with an agent or broker to either buy or sell the stock as soon as it hits a specific price, this is done to do as much damage control to the loss of the investor’s as possible in a small time gap. For example, if you set the stop loss order at 5% percent less than the price you bought your share at, the stock will limit your loss to just that 5% and not any more than that and as soon as at it hits that low, your share will be sold at the going price in the market.
Advantages of a Stop-loss Order
However, no commission price is charged until the stop-loss order has been reached and the stock is ready to be sold, this makes it very much similar to a free insurance program, now you can’t tell me that that doesn’t sound like the best thing in the world.
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