Stop-loss orders in the stock market help limit your risk by automatically selling your shares when the price falls to a certain level. This prevents you from losing more money than you’re willing to risk. It’s a simple and effective way to protect your investment and control losses without having to watch the market all the time.

What Is a Stop-Loss Order in Stock Trading?

A stop-loss order is a pre-set instruction given to your broker to sell a stock when its price drops to a certain level. For example, if you buy a stock at ₹500 and set a stop-loss at ₹450, the stock will automatically be sold if the price touches ₹450. This helps limit your loss to ₹50 per share and protects your capital.

Why Are Stop-Loss Orders Important for Risk Management?

Stop-loss orders are a key tool for managing risk. They help investors stick to their loss limits without getting emotional or panicking when markets fall. By using a stop-loss, you ensure that a bad trade doesn’t turn into a big loss. It allows you to stay disciplined and maintain control over your investments.

How Does a Stop-Loss Order Work?

Once the stock price hits your stop-loss level, your order becomes a market order and the shares are sold at the next available price. This helps you exit quickly from a falling stock. It is especially useful when the market moves fast, and you don’t want to sit and monitor your stocks constantly.

When Should You Use a Stop-Loss Order?

You should use a stop-loss order whenever you want to manage your losses smartly. It is useful in both short-term and long-term trading. New investors, in particular, can use stop-loss to avoid big losses due to inexperience. It also helps if you are not able to track the market all the time but still want to stay protected.

How to Set a Good Stop-Loss Level?

To set a good stop-loss level, decide how much loss you can afford. Many traders use a percentage like 5% or 10% below their buy price. For example, if you bought a stock at ₹200, a 10% stop-loss would be ₹180. Make sure the stop-loss is not too close, or it might trigger due to small market moves. It should give the stock some space while still protecting your money.

What Are the Benefits and Risks of Stop-Loss Orders?

The main benefit of a stop-loss order is peace of mind. You don’t have to worry about sudden crashes. It helps you stay disciplined. However, if the price hits your stop-loss and bounces back, you might miss out on gains. So, choose the stop-loss level carefully and update it as the stock price moves up.