The Stop-Loss Order - Make Sure You Use It

By Investopedia Staff

What with so many facets to look at and brood over when weighing a stock buy, it's easy to forget about the little things. The stop-loss order is one of those little things, but it can also make the world of difference. Just about everybody can benefit from this tool in some way. Read on to find out why.

What Is a Stop-loss Order?
It is an order placed with a broker to buy or sell once the stock reaches a certain price. A stop-loss is designed to limit an investor's loss on a security position. Setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%. For example, let's say you just purchased Microsoft (Nasdaq:MSFT) at $20 per share. Right after buying the stock you enter a stop-loss order for $18. This means that if the stock falls below $18, your shares will then be sold at the prevailing market price. (For further reading, see A Look At Exit Strategies.)


Read more: The Stop-Loss Order - Make Sure You Use It | Investopedia http://www.investopedia.com/articles/stocks/09/use-stop-loss.asp#ixzz4Yk3LndL4
Follow us: Investopedia on Facebook