Stop loss
What is a stop loss order?
An order to buy or sell a certain stock with a broker once the stock hits a predetermined price is known as a stop-loss order. A stop-loss is intended to reduce an investor's loss on an investment in a security.
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Video: Stop loss at 7 min 10 sec.
For instance, placing a stop-loss order 10% below the price at which you purchased the stock will only allow you to lose 10% of your investment.
Let's say you recently bought shares of Apple (AAPL) for $100 each. You immediately put in a $90.50 stop-loss order after purchasing the stock. Your shares will be sold at the current market price if the stock price declines to below $90.50.
Similar to stop-loss orders are stop-limit orders. But there is a cap (a limit) on the price at which they will execute, as their name implies. The stop price, which will change the order into a sell order, and the limit price are the two prices that are stated in a stop-limit order. The sell order changes from being a market order to a limit order that will only execute at the limit price (or better).
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