#StopLossStrategies The stop loss order: make sure to use it

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 order is designed to limit an investor's losses on a security position. For example, setting a stop-loss order 10% below the purchase price of the stock will limit your loss to 10%. Suppose you just bought Microsoft (MSFT) at 20.$ per share. Immediately after buying the shares, you place a stop-loss order at $18. If the stock falls below $18, your shares will be sold at the current market price.

Stop-limit orders are similar to stop-loss orders. However, as the name suggests, they have a limit execution price. In a stop-limit order, two prices are specified: the stop price, which turns it into a sell order, and the limit price. Instead of becoming a market order to sell, the sell order becomes a limit order that will only execute at the limit price (or better).

Advantages of the Stop Loss Order

The main advantage of a stop-loss order is that its implementation is free. Your regular commission is only charged once the stop-loss price is reached and the stock must be sold. One way to think of a stop-loss order is as a free insurance policy.

Additionally, by using stop loss orders, there is no need to monitor the daily performance of a stock. This convenience is especially useful when on vacation or in a situation that prevents you from overseeing stocks for an extended period.