What Is Stop Loss, How Stop Loss Works in Detail, Tips
Stop Loss is the most valuable thing for us, when it comes to live trading in the share market. Stop loss is used by most of the traders. Stop loss plays a very crucial role for those people who do intraday trading or other types of trading.
To understand stop loss, you need to have complete knowledge of trading. Without any knowledge, you won’t be able to understand stop loss properly.
In today’s article, we’ll know about what is stop loss and how to apply stop loss in trading in detail…
What does Stop Loss Mean
The meaning of Stop Loss is Stopping the Loss. If understood in simple words, it is a situation where the loss is stopped.
What is the Stop Loss
Stop loss is an option in trading, with the help of which you fix a price limit. If the share price decreases below this limit then your loss will be stopped and the rest amount will be transferred back to your trading account.
For example, let us assume that you have bought shares for around ₹125 per share and you feel that the price of the shares will increase and will go up to ₹140 per share.
But as soon as you invest, the price of shares falls down to ₹100 per share. Now you know that the share price of this company will decrease instead of increasing today. In such situation, you thought to sell the shares as immediately possible, without facing much more loss in today’s market.
But by the time you were about to sell, the share price further decreased and now the share price is around ₹90 per share. In such situation, you have incurred a loss of around ₹35 per share.
But if you had used stop loss feature, then you would not have suffered that much loss. This is because after reaching the price of your stop loss, the shares would have been automatically sold in the market from your trading account.
In this, way you dan’t face much loss while trading.
What Happens After Applying Stop Loss
For example, you have placed Stop Loss of around ₹100 per share on the shares that you have bought of around ₹125 per share.
Now let’s assume that the price of that share started falling and kept falling till it reached ₹100 per share. In this case, now your shares will be sold immediately on price limit of ₹100 per share.
In this way, you will just face a loss of only ₹25 per share.
Hoping, you have completely read the article about What is Stop Loss.
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