PostHeaderIcon What is Stop Loss Order?

A stop loss order is an instruction usually given by a trader or an investor to a broker to either buy or sell a stated security once its price climbs above or drops below a specified stop price. With issuing a stop loss order, the investor does not need to monitor how a certain security is doing in the market. It is automatically enforced once the stated stop price is reached.

Stop Loss Limit Order

There are various types of stop loss orders that traders or investors issue to their brokers for certain securities. One of them is the stop loss limit order. It can either be given as a stop loss buy limit order or a stop loss sell limit order.

In the case of the former, the order can only be executed when a security reaches the limit price or lower. This may be useful for traders who wish to buy a certain security but would not want to buy it above a certain price.

In the same way, the stop loss sell limit order can only be done by the exchange if the limit price for the security is reached or higher.

The advantages of the stop loss limit order is that it gives the trader total control over the price from which a certain security may be traded.

A disadvantage may be that such a stop loss limit order may not even be executed if there are no buyers or sellers willing to trade at the stated limit price.

Stop Loss Market Order

The stop loss market order is an order issued to a broker to deal a security immediately at the current market prices once a certain stop price has been reached. In a sell stop market order, the order is executed to sell a security at the best available price once the price goes below the stated stop price.

A buy stop market order is executed in order to help a trader limit a loss on a short sale. It can help a trader buy securities near a certain stop price and not gather considerable losses if the price of the securities go too high.

An advantage of a market order is that they are always executed once the stop price is reached. A market order always gets a trader a buy or sells trade once the stop price has been reached.

But the main disadvantage of issuing such orders is that buying or selling the securities may be done without the trader having control over the price of the security.

This is because the order may be executed after a certain stop price has been reached and transactions are made with the prevailing current prices.


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