Stop Loss
Stop loss is a financial term used to describe a situation in which an investor or trader sets a predetermined price at which they will sell a security or asset. This predetermined price is known as the stop loss price. The purpose of setting a stop loss is to limit the potential losses of an investment or trade. By setting a stop loss, investors and traders can protect themselves from large losses if the market moves against them.
History of Stop Loss
The concept of stop loss has been around for centuries, but it was not until the advent of electronic trading that it became widely used. In the early days of electronic trading, traders would manually enter their stop loss orders into the system. This was a time-consuming process and it was not until the late 1990s that automated stop loss orders became available. Today, most trading platforms offer automated stop loss orders, allowing traders to quickly and easily set their stop loss prices.
Comparison Table
| Type of Order | Description |
|---|---|
| Market Order | An order to buy or sell a security at the current market price. |
| Limit Order | An order to buy or sell a security at a specified price or better. |
| Stop Loss Order | An order to sell a security when it reaches a certain price. |
Summary
Stop loss is a financial term used to describe a situation in which an investor or trader sets a predetermined price at which they will sell a security or asset. This predetermined price is known as the stop loss price. The purpose of setting a stop loss is to limit the potential losses of an investment or trade. By setting a stop loss, investors and traders can protect themselves from large losses if the market moves against them. For more information about stop loss, investors and traders can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Market Order
- Limit Order
- Take Profit Order
- Trailing Stop Loss Order
- Stop Limit Order
- Stop Out Level
- Margin Call
- Risk Management
- Position Sizing
- Volatility
