Stock Markets Exposed

What is a stop loss order (in terms of stock investing) ?

What is the purpose of a stop loss order? Are there any other names for it ?

Public Comments

1. I believe after you own a stock you may limit your loss with a stop loss order that sells the stock at a pre-fixed price if it takes a dive so you limit you loss,at a fixed price that you decide you can live with.
2. It is an order that is set to sell at a preset market price. As soon as the price is reached or lower, the order is triggered to a market order at the market bid/ask. For example, if you held shares in YHOO at 21.50 and wanted to sell if it reached 20.00 or less you would set a stop loss order for 20.00. The risk with a stop loss order is that sometimes it can be triggered at a price below the stop price. If say YHOO broke off the deal with GOOG afterhours, the stock could quickly fall in price. For example YHOO could open at 18 from the previous days 21.50, but since the price is below your stop order the order is automatically triggered at 18 to a market order and you sell into the panic. So it can be a way to limit losses, but it is not without risk. Some people just call it putting in stops, or stop-market orders. The way to protect yourself from bad trade executions is to put in a stop-limit order, which once the stop is triggered, the order is converted to a limit order. So in the above, you could put a stop on YHOO at 20 and a limit at 19.50 to guarantee that your sale will be between 19.50 and 20 and not executed at 18.
3. a stop loss limits the investor's loss on an investment, so if you bought 10 stocks of something for $1 and the max you wanted to lose on it was $1, then you would put a stop loss on it if it dropped to 50 cents per stock, other names for it are stop order and stop-market order, investopedia was always my favorite for learning about stock investing