What is a stop-loss order?
A stop-loss order is a type of stock trading order that helps investors protect their investments from large losses. It works by automatically selling shares when the price drops below a certain level, known as the “stop” or “trigger” price. This allows traders to limit their potential losses and avoid being caught in an unfavorable market situation. Stop-loss orders can be used for both long and short positions, depending on whether you are looking to buy or sell stocks.
Stop-loss orders are especially useful for those who cannot monitor the markets constantly due to time constraints or other commitments. By setting up a stop-loss order, they can rest assured knowing that if prices drop too low, their investment will be sold off before it incurs any major losses. Additionally, these orders help reduce emotional decision making since trades will occur regardless of how one feels about them at the moment; this prevents rash decisions which could lead to further financial loss down the line.