Stop-Loss: Overview, Meaning & Types of Stop-Loss Order in Share Market

short position

In the weekly chart of State Bank of India we can place a stop loss in trading at the 235 support level, if this level is broken then our stop loss order will be executed at Rs. 235. Thus by placing the stop-loss to his trade, Abhay protects his trade by preventing potential losses. On the other hand, if the share price jumps to Rs. 175 per share, then Abhay would want to hold on to his shares. We collect, retain, and use your contact information for legitimate business purposes only, to contact you and to provide you information & latest updates regarding our products & services.

  • With all this in mind, earlier we released the Manage Position feature for both This feature was completely made with inputs from the Dhan community.
  • These investors make use of time-based fixed stop when the shares are positioned and sized properly to stop high swings in share price.
  • In quick-moving markets, the price paid or got might be very unique in relation to the last price cited before the order was entered.

When the value goes below the stop price, a stop-limit order is triggered; however, the order may not be executed due to the value of the limit section of the order. To buy or sell a security when its price falls below a certain level, you would issue a stop-loss order with your broker. When it comes to stop-loss orders, they are used to limit an investor’s loss on a secure foothold. These orders are distinct from stop-limit orders, which are used to limit gains. Stop loss orders provide an automated and quick way to close positions and it eliminates human errors to some extent as well.

So, basically, a stop loss offers protection from excessive losses, enables better control of one’s trading account, is executed automatically, and is easy to implement. This also allows the trader to decide how much amount they are willing to risk. Stop-loss protects the investors’ balance from a wipeout and provides a safety net to explore trading. Stop loss is an automatic order to buy or sell securities once the specific price is reached which is commonly known as stop price. The concept of stop loss can be used for short term as well as long term trading. By placing a stop loss order, the investors instruct the broker or an agent to sell off the security when it strikes a set price limit.

Stop-loss Order: Cap Your Losses

Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from the depository on your email id and/or mobile number to create a pledge. Pay 20% upfront margin of the transaction early to trade in the cash market segment. Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.

Secondly, the stop loss can also fail if the trading is halted for some reason. These are routine risks and does not in any way dilute the importance of stop losses in trading. Have you come across a situation where you were sure of stock, but did not have the funds to buy it.

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A sell–stop order is entered at a stop price beneath the current market price. The advantage in margin trading is that this margin is paid either in cash or in shares as security, but such stock as security will be subject to a haircut. Margin trading is like leveraging positions in the market either with cash or security by investors. The margin can be settled later when you square off your position. Ensure that you make a net profit after interest cost, as otherwise, the exercise is not worth the trouble. The first approach to calculate the stop loss is called the Percentage Method.

You must immediately take up the matter with Broker/Exchange if you are not receiving the messages from Exchange/Depositories regularly. In this strategy, the stop-loss order is placed at a price point at which the stock price trend is expected to rise up from a downward trend. Only utilize time-based stops when positioned sized properly to permit major adverse swings in share price.

They should have every tool in hand while tracking and managing positions, from the time they taken one till the time they exit. Therefore, by putting a stop loss, you are limiting your losses. You are booking a loss at 5% and avoiding the scenario in case the trade might turn out ‘sour’ and the share price falls more than 5% (say 7 or 10%).


hyperinflation: definition, causes, effects, examples is a simple tool used to limit losses when the market starts moving in an undesired direction. It is a mechanism used by traders to institute discipline in trading and prevent impulsive trades. Right after buying the stock you enter a stop-loss order for Rs 800. If the stock falls below this level , your shares will then be sold at the prevailing market price. The advantage of a stop-loss order is you don’t have to monitor how a stock is performing and the trade is executed once the stop-loss level is mentioned.

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Now, let us assume that the stock price starts moving up continuously and hits INR 200. The trader might decide to increase the Stop Loss from INR 90 to INR 130, for example. This way, the trader has still not exited the position and has locked a profit of INR 5 per share (INR 130 – INR 125). So, placement of a Stop Loss is an art and not rocket science because every trading situation will be unique. Therefore, the traders need to consider multiple factors and can then find an appropriate Stoploss by themselves. Once the price has been fixed, the traders should refrain from constantly watching the stock movement and they should not change the Stop Loss prices frequently.

If price corrects further to nine hundred and fifty rupees, his broker Angel One will sell the shares to prevent further losses. The Stock Market is a highly volatile field, and where it can help you earn more profit, it can also incur heavy losses. In such a case, the best viable option to exit the trade is to use the stop-loss trading strategy. Another limitation of stop-loss orders can be attributed to the time of sale of respective securities.

Trading Stop Loss

So guys, what I’ve covered in this video is the mechanics of how you can exit without having to worry about day checking the stock prices of your investment daily. For a long-term investor, it is very important to stay in a good quality stock for as long as possible and not get shaken out by these short term fluctuations. So what I will do is, you know, in future videos, I will make a video about how I decide when I exit an investment. Maybe that can shed some light on how you can plan your exit strategy. Personally speaking, I don’t use GTT that much because there are more sophisticated ways via algo trading, which I’m, by the way, a huge fan of.


You can take a call on whether you want to use simple moving averages or exponential moving averages . Once the moving average has been identified and frozen, set your stop-loss slightly below the moving average level for buy positions and slightly above the moving average line for sell positions. Since this is a Long Position and shares have been bought, a Sell Stop Loss order has to be used.

The Stop Loss orders are very important for regular traders as it limits the losses that they can encounter. The process to place a Stop Loss order will depend on the Stock Broker and the platforms that they have provided to their customers. So, it is highly recommended for the traders to familiarize themselves with the tools that they use to add Stop Loss orders. This technique is usually applied when the size of the position is very large. Having a single order with big size can move the market and lead to a sudden spike in the trade prices if there are not enough counter-parties available.

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In such a case, your stop loss will not get triggered, and hence, your sell order never gets placed. All investors are requested to take note that 6 KYC attributes i.e. Name, PAN, Address, Mobile Number, Email id and Income Range have been made mandatory. Investors availing custodian services will be additionally required to update the custodian details. The purpose behind creating these 2 series is to disrupt the myths about ‘trading’ and teach about ‘how to trade’ respectively. Also, once the stop-loss order is initiated, it turns into a market order.


Investment in securities markets are subject to market risks, read all the related documents carefully before investing. Now, the moment stock hits Rs 90, the order is triggered and sent to the exchange. But, the stock will be sold at the next available price lower than Rs 90 but higher than Rs 89. It can be Rs 89.75, Rs 89.60, or also Rs 89, but not lesser than Rs 89. The demat account shall be unfreezed once the investor submits the deficient KYC details and the same is captured by the depository participant in the depository system.

Profitability, Growth, Valuation, Liquidity, and many more filters. Search Stocks Industry-wise, Export Data For Offline Analysis, Customizable Filters. Moreover, if you are a new trader and not have the skill yet to decide ‘quickly’ the price action of a share, then you should definitely learn the proper stop loss placement techniques. Although ‘stop-loss’ might sound a little complicated to the beginners, however, it is really simple to understand.

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