A stop-loss order is an order placed with a broker to buy or sell a security once it reaches a certain price, known as the stop price. It is designed to limit an investor's potential loss on a position or to lock in a profit once a certain threshold is met.
Stop-Loss Order
Definition
A stop-loss order is an order placed with a broker to buy or sell a security once it reaches a certain price, known as the stop price. It is designed to limit an investor's potential loss on a position or to lock in a profit once a certain threshold is met.
Example
If an investor buys a stock at $50, they might place a stop-loss order at $48. If the stock drops to $48, the order automatically triggers a market order to sell, limiting the loss to $2 per share.
Key Points
- 1Automatically triggers a market order at the stop price.
- 2Used to limit potential losses.
- 3Can be used for both long and short positions.
- 4May not execute at the exact stop price in volatile markets due to slippage.
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