Stop-Loss Order

A Stop-Loss Order is a type of order placed with a broker to buy or sell once the Stock reaches a specified price, known as the stop price. It is designed to limit an investor’s loss on a security position. When the stop price is reached, the stop-loss order becomes a Market Order and is executed at the next available market price.

For example, if an investor owns shares of a stock currently priced at $50 and wants to limit potential losses, they might place a stop-loss order at $45. If the stock price falls to $45, the order will trigger and the shares will be sold at the market price.

In another case, an investor may have a stop-loss order on a stock purchased at $100, set at a stop price of $90. If the stock drops to $90, the stop-loss order will execute, potentially selling the stock at $89.50 if that’s the next available market price.