Insurance

Stop Loss

A Stop-loss order is insurance that can be used against sudden changes or crash in the market to limit the losses.
Hence the limit can be as low as 1% so the max loss will be 1% of the trade that went wrong.

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 is designed to limit an investor’s loss on a security position. For example, setting a stop-loss order for 2% below the price at which you bought the stock will limit your loss to 2%.

Remember that the key difference between a limit order and a stop order is that the limit order will only be filled at the specified limit price or better; whereas once a stop order triggers at the specified price, it will be filled at the prevailing price in the market—which means that it could be executed at a price.

What is the best stop-loss strategy?

• As a day trader, you should always use a stop-loss order on your trades. …
• A good stop-loss strategy involves placing your stop-loss at a location where, if hit, will let you know you were wrong about the direction of the market.