Stop-loss order

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Stop-loss order

An order to unwind a position when the price moves against you. This order is designed to limit losses or in some cases to lock in a certain level of profit. As soon as the price of the security hits the stop-loss price (or falls below), the order becomes a market order. If you were short the asset, the stop-loss would trigger a purchase. Stop-losses are often disabled for after hours trading because prices are often quite variable and you could be executed at an unfavorable price. Stop losses are also usually calculated off the bid price (which is a measure of what people are actually willing to pay if the security is sold). Again, one needs to be careful because if there is lack of liquidity, the bid-ask spread could be large and you could be stopped out at an unfavorable price. Finally, some traders have rolling or trailing stop loss. As the price moves up the stop-loss is moved higher (say 20% below the current price).

Stop-Loss Order

An order to a broker to buy or sell a security at the best available price once a certain, stated price is reached. Suppose that price is $50. A stop order remains inactive until that security begins trading at $50, at which point the broker may fill the order at best price he/she is able to find. A stop-loss order is technically the same as a stop order, but carries the connotation of avoiding further losses rather than seeking to cash in on future gains. See also: Protective stop.
References in periodicals archive ?
Guaranteed Stop and Stop Loss orders are used by investors to protect their downside when they trade.
Trailing stop loss orders and bracket orders are designed to help clients minimise possible losses and maximise possible gains.
The dramatic drop sliced through massive stop loss orders and the market simply had no buyers.
The intraday dive dragged the stock market through several support levels and undoubtedly touched off massive stop loss orders.
Traders were taken by surprise with the sudden selling pressure in turn triggering stop loss orders.
Zinc: Having hit a low of $1032 on Monday, the three months price managed a good bounce which on passing the $1050 level on Wednesday triggered stop loss orders leading to what was to be the week's high of $1072 that day.
Nickel: The woes of this market continue unabated when support at around $4,400 was broken on Wednesday which saw stop loss orders take the forward price down to a $4,220 low before a slight improvement on Friday produced a $4,330 close representinga $1 05 loss over the week.
Unfortunately, despite having a duty to do so, Merrill Lynch failed to protect the concentrated Weyerhaeuser stock position through the use of available risk management strategies, like a collar, protective put options, stop loss orders and/or an exchange fund.