What is stop loss?????

#1
Hi to all..i am a new trader please tell me what is a stoploss ..i mean please clarify this with examples....thank you for your time
 

Tavnaz

Well-Known Member
#2
Hello there buddy,
A stop loss is an order which is to prevent the equity inside your account.
Suppose you have 10000 rs in your account and then you buy 100 shares of XYZ company at 10 Rs so the total amount you have invested is 1000 Rs and amount standing margin is 9000 Rs.
Total: 10,000 Rs
Invested: 1,000 Rs
Remaining: 9,000 Rs
Now say the price of the stock rises and moves on to 11 Rs,if you wanted to sell at that level your order gets executed at 11,which will be Take Profit Order.

But if you were wrong and market turns against you and value falls to 9 Rs,and before entering you already had decided you don't want to loose more then 100 Rs,so in that case your Sell Stop or stop loss order gets executed at 9 Rs.
So Stop Loss is the Maximum risk you are willing to take on the remaining amount, after which you will sell the stock back to the market.
Your sample Take Profit=11 Rs
----do----- Stop loss= 9 Rs
Your Order is at 10 Rs
Hope that helps.:)
 
#3
Ok..Thank you Tavnaz sir..so stop loss terminates the order i think..so tell me one thing is it used by people who are ready to afford small loss rather than holding the stock ????????
 

Tavnaz

Well-Known Member
#4
Hello again,
Well i personally don't trade stocks that much, i trade forex.
But Stops are a common thing.
Well if you think that stops are a thing for small losses or a reason for loss, you are wrong.
No trading system is perfect so when you buy a stock and expect it to go up,there is still a chance it may go down,but you will not always be there in front of your screen, so if it goes down it will save you your money.
So the point is, i know xyz is going up, but what if it doesn't,if there was no stop order and stock went in free-fall your account will be wiped out.
Take Same example as above:
Price 10 loss 0
Price 9 loss 100
Price 8 loss 200-------------------------------------Price 1 loss 900.
See if you had a stop you were saved at 100 loss, not 900.
It is for contentment of mind that i won't loose more then the money i know.
And i won't win more money then i want.
In investment you don't go for short term,if you knew after 10 years price of xyz willl be 100 rs will i be worried and place a stop at 7 Rs.
No i won't be worried,but still i will place a stop at 7 Rs as a calculated risk.
Hope this helps.
Regards
Taz