They may then decide at this point to place a sell trailing stop order at 10p. So, for example, imagine an investor purchases a share at 150p and the share price subsequently rises to 200p. However, it will close the trade if the price changes direction by an amount set by the investor. This is aimed at protecting gains by allowing a trade to remain open and continue to profit, provided the share price is moving in the investor’s favour. There is another type of stop-loss order, known a ‘trailing stop’, which adjusts automatically to the moving value of the share. How an investor uses a stop-loss order, of course, depends entirely on their personal preferences, investment goals and attitude to risk. For example, an investor might buy a share at 150p, and set a stop order at 190p, ensuring profits are retained at this price point. This means that if the stock falls to 140p or less, shares currently held will be sold at the next available market price below this limit, which could be 139p or lower.Īlternatively, an investor may also set a stop order to cement a profit. To take an example of how it might work in practice, let’s say an investor buys a stock at 150p per share, and sets a stop-loss order for 140p. For example, setting a stop-loss order for 10% below the price at which you bought the stock will limit your losses to 10%. If the share price falls, the stop order may be triggered automatically, and the holding sold. The aim of a stop-loss order is to limit an investor’s loss from an investment if that investment falls in value. Investors can also set a stop loss to retain a profit. One way for investors to protect themselves from any sudden market setbacks is to consider using a stop-loss order, enabling them to automatically sell shares at a set price they’ve determined. Periods of stock market volatility provide a stark reminder that investments can move down as well as up, sometimes with alarming speed.
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