purchase order to halt the sale of securities when they reach a specific price point.

In the dynamic world of trading, one tool that every investor should be familiar with is the stop-loss order. This article aims to shed light on this essential trading mechanism.

Stop-loss orders function as insurance for traders, ensuring that losses never exceed a specified point. They allow users to buy or sell stocks or assets at a specified stop price, providing a safety net in fast-moving markets where catching the right moment to execute trades can be challenging.

The trading terminal displays the stop price as the trigger price for a stop-loss order. Once this trigger price is reached, the order is not executed at the market price, but a normal limit order is placed instead. This limit price, which is specified alongside the stop price, determines the maximum price at which the order will be executed.

However, it's important to note that stop-loss orders may not always be executed due to sharp price movements that cause the asset's price to move beyond the specified limit price. In such cases, the order may not go through, but the risk of substantial losses is minimised.

Stop-loss orders are particularly useful in protecting against unexpected market fluctuations. For instance, they can be used to establish new positions at price levels that the trader believes the asset will be at in the future.

One advantage of stop-loss orders is that the deviation in price when they are executed is usually minimal. This means that even when the market price deviates from the stop price, the impact on the overall trading strategy is limited.

Stop-loss orders can also be combined with a limit order, providing traders with even more control over their trades. For example, a trader could set a stop-loss order to sell a stock at a specific stop price, while also specifying a limit price at which the sale should be completed.

Stop-loss orders are a common tool used by experienced traders for a more sophisticated trading strategy. They offer the advantage of being executed immediately and being highly unlikely not to go through, except in specific circumstances.

However, it's crucial to remember that the stop price is unlikely to be the exact price at which a stop-loss order is executed. The market price can deviate from the stop price when a stop-loss order is executed.

It's also important to note that the information provided in this article is the author's opinion and should not be considered as offering trading or investing recommendations.

Stop-loss orders are one of the two main types of orders every investor should know (along with market orders). Understanding these tools can significantly enhance a trader's ability to manage risk and protect their investments.

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purchase order to halt the sale of securities when they reach a specific price point.