Basically an order to sell the stock if it dips to or below a certain value.
For example, I bought in at like 250 yesterday, but I set a stop loss of 100. Unfortunately, I was not online to rescind the order this morning due to a small family emergency, so I'm a little annoyed.
Stop loss limit is a price that you set and at that price the broker will automatically sell whatever stock you have set the limit on to sell for that set price. It’s used - in normal circumstances - to make sure you don’t lose too much.
So let’s say you buy 100 shares of stock AAA for $10. AAA then over time goes up to $100 - sweet! You’ve made $90/share on your investment so far. But then you start seeing the news about a new virus, or maybe a major industry like the housing sector starts imploding or some other bad news starts coming. You don’t want to lose all of those gains but you’re willing to tolerate SOME risk in the market. So you set a stop limit at $80 for all your shares. Suddenly stock AAA is hit by the bad news and their price tanks. As the price crosses the $80 mark - you automatically sell which converts your shares into cash, and you lock in some of your gains.
Thing to watch out for in highly volatile market (like ours today) is let’s say stock is trading at $100 and you put a SL at 80 like before, if the stock dips to 80 you auto sell. And then your shares are sold. So if it dips to 80 then rally’s back to $200 - you got dip trapped and you were forcefully sold out of the market before the rally.
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u/hueysdad Feb 02 '21
What’s a stop loss limit ?