How can I use stop-loss orders to protect my investments from risk?

Stop-loss orders help protect your investments by automatically selling a stock when its price falls to a predetermined level. This prevents larger losses in a falling market and ensures you don’t hold onto a stock for too long, hoping for a recovery. Stop-loss orders are useful for both short-term traders and long-term investors looking to minimize risks.

1. What is a Stop-Loss Order?

A stop-loss order is a trading tool that automatically sells a stock when it reaches a specific price. This helps investors limit their losses and manage risk effectively.

For example, if you buy a stock at ₹500 and set a stop-loss at ₹450, your stock will be sold automatically if the price drops to ₹450, preventing further losses.

2. How Do Stop-Loss Orders Work?

Stop-loss orders work by setting a trigger price at which your stock will be sold. Once the stock hits the trigger price, the order is executed, preventing further losses.

• Market Stop-Loss: Sells your stock at the best available price once the stop price is reached.
• Limit Stop-Loss: Sells your stock only at the set price or better, which may not always execute in volatile markets.

3. Benefits of Using Stop-Loss Orders

Stop-loss orders offer multiple benefits to investors:

• Prevents Large Losses: Automatically selling a stock at a predetermined price protects against significant losses.
• Removes Emotional Trading: Helps investors avoid emotional decisions and stick to their investment strategy.
• Saves Time: You don’t need to monitor stock prices constantly.
• Works in Any Market: Useful in both bull and bear markets to protect investments.

4. How to Set a Stop-Loss Order?

Setting a stop-loss order is simple and can be done in a few steps:

1. Log into your stock trading account.
2. Select the stock you want to protect with a stop-loss order.
3. Choose the type of stop-loss order (market or limit).
4. Set your stop price (the price at which you want to sell).
5. Confirm and place the order.

You can modify or cancel the order anytime before it gets executed.

Stop-loss orders are a powerful tool for investors looking to protect their portfolios from sudden losses. By setting a stop-loss, you can automate risk management and prevent emotions from influencing your trading decisions. Whether you are a beginner or an experienced trader, using stop-loss orders ensures you stay in control of your investments while minimizing risks. Implementing this strategy wisely can help you build long-term wealth in the stock market.