Concept of Stop Loss and Limit price
- Thread starter speedmetal78
- Start date
The answer to your question is simple.
Once the SL is triggered, there may not be readily available so much quantity of stock you want to square-off. In order to ensure that the transaction is squared-off for sure, you authorize to buy/sell at or above Rs.1824, but not below this price. This is a safeguard to protect the interests of the broker.
If this limit of Rs.1824 is not specified, then the square-off may take place at a price far below the said limit price.
Once the SL is triggered, there may not be readily available so much quantity of stock you want to square-off. In order to ensure that the transaction is squared-off for sure, you authorize to buy/sell at or above Rs.1824, but not below this price. This is a safeguard to protect the interests of the broker.
If this limit of Rs.1824 is not specified, then the square-off may take place at a price far below the said limit price.
For a layman, stop loss order and limit order may seem similar but there exists difference between both of them, which is as follow:
Stop Loss:
An order placed with a broker to sell a stock when it reaches a certain price. It is designed to limit an investor’s loss on a position which is held by him, although most investors associate a stop-loss order only with a long position, it can also be used for a short position. This plays quite a role when a trader or investor is not near the platform and he has an option to secure or limit his risk.
For example:
You buy XYZ stock at 100rs and while putting up the trade you can enter 90 as your SL and if this stock ever trades below 90 your SL will be triggered and stock will be sold at any next available market price.
Limit Order:
An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled. Depending on the direction of the position, limit orders are sometimes referred to more specifically as a buy limit order or a sell limit order. For a buy limit, buyer is not willing to pay a price above his decided price and for selling he is not willing to sell below it.
Stop Loss:
An order placed with a broker to sell a stock when it reaches a certain price. It is designed to limit an investor’s loss on a position which is held by him, although most investors associate a stop-loss order only with a long position, it can also be used for a short position. This plays quite a role when a trader or investor is not near the platform and he has an option to secure or limit his risk.
For example:
You buy XYZ stock at 100rs and while putting up the trade you can enter 90 as your SL and if this stock ever trades below 90 your SL will be triggered and stock will be sold at any next available market price.
Limit Order:
An order placed with a brokerage to buy or sell a set number of shares at a specified price or better. Limit orders also allow an investor to limit the length of time an order can be outstanding before being canceled. Depending on the direction of the position, limit orders are sometimes referred to more specifically as a buy limit order or a sell limit order. For a buy limit, buyer is not willing to pay a price above his decided price and for selling he is not willing to sell below it.
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