Stop loss order | I learned the lesson

Sept. 26, 2022

I do not set the stop loss order, and I do not build a good habit to practice stop loss order in 2022. I have to build a good habit and then learn the lesson with big loss on SABR stock. 

The Stop-Loss Order—Make Sure You Use It

By 

THE INVESTOPEDIA TEAM

 

Updated February 09, 2022

Reviewed by 

SOMER ANDERSON

Fact checked by 

MELODY KAZEL

With so many things to consider when deciding whether or not to buy a stock, it's easy to omit some important considerations. The stop-loss order may be one of those factors. When used appropriately, a stop-loss order can make a world of a difference.1 And just about everybody can benefit from this tool.

KEY TAKEAWAYS

• Most investors can benefit from implementing a stop-loss order.
• A stop-loss is designed to limit an investor's loss on a security position that makes an unfavorable move.
• One key advantage of using a stop-loss order is you don't need to monitor your holdings daily.
• A disadvantage is that a short-term price fluctuation could activate the stop and trigger an unnecessary sale.

What Is a Stop-Loss Order?

A stop-loss order is an order placed with a broker to buy or sell a specific stock once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position. For example, setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%. Suppose you just purchased Microsoft (MSFT) at $20 per share. Right after buying the stock, you enter a stop-loss order for $18. If the stock falls below $18, your shares will then be sold at the prevailing market price.

Stop-limit orders are similar to stop-loss orders. However, as their name states, there is a limit on the price at which they will execute. There are then two prices specified in a stop-limit order: the stop price, which will convert the order to a sell order, and the limit price. Instead of the order becoming a market order to sell, the sell order becomes a limit order that will only execute at the limit price (or better).