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

A stop-loss order helps protect your stock investments by automatically selling a stock if its price drops to a certain level. This prevents large losses and ensures you exit a trade before the price falls further. By setting a stop-loss, you reduce risks and maintain control over your investments, even when you are not actively monitoring the market.

1. What is a Stop-Loss Order?

A stop-loss order is a trading tool that helps investors limit losses by selling a stock automatically when it reaches a predefined price. It is useful for protecting profits and managing risks.

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

2. Types of Stop-Loss Orders

There are different types of stop-loss orders based on how you want to exit a trade:

• Fixed Stop-Loss: A specific price level at which the stock is sold.
• Trailing Stop-Loss: Adjusts as the stock price moves up, locking in profits.
• Percentage Stop-Loss: The stop-loss is set as a percentage below the buying price.

3. How to Set a Stop-Loss Order?

Follow these steps to set a stop-loss order:

• Choose a stock you want to protect.
• Decide the stop-loss price based on your risk tolerance.
• Place the stop-loss order with your broker.
• The stock will be automatically sold if it reaches the stop-loss price.

4. Benefits of Using Stop-Loss Orders

Using stop-loss orders offers several advantages:

• Prevents Huge Losses: Limits the downside of an investment.
• Removes Emotional Trading: Automatically executes trades, avoiding panic decisions.
• Helps in Risk Management: Essential for both short-term and long-term traders.
• Saves Time: No need to monitor stocks constantly.

Stop-loss orders are an effective tool for protecting your stock investments from unexpected market downturns. By setting a stop-loss at a strategic level, you can minimize risks and ensure a disciplined approach to trading. Whether you're a beginner or an experienced trader, using stop-loss orders can help you trade with confidence and avoid major financial losses.