A stop-loss order is a buy or sell order, placed by a trader with the intention to limit his losses.
- Stop Loss Buy Order = Here the trader intends to buy a script at or above the market rate.
- Stop Loss Sell Order = Here the trader intends to sell a script at or below the market rate.
There are 2 types of Stop-Loss order:
- Stop-Loss limit order: The trader will enter both limit and trigger price. The intention of the trader is to activate the order using trigger price and execute it at or above the limit price.
Example: Mr. X has bought a share at Rs. 100. He intends to place a Stop-Loss Sell Limit Order. Here the trigger price is Rs. 96 and the limit order price is Rs. 95. The effect of this is that the order is activated as soon as the market prices reach the trigger price of Rs. 96 and will get executed if the market prices sustain at or above the limit price of Rs. 95.
- Stop-Loss Market Order: The trader can’t enter the limit price and will enter only the trigger price. Since there is no limit price, the order will get executed at the next available market price after it reaches the trigger price.
Example: Mr. X has bought a share at Rs. 100. He intends to place a Stop-Loss Market Order where the trigger price is Rs. 96. The effect of this is that as soon as the market price reaches Rs. 96 (trigger price) the order gets executed at the next available market price.