A Stop-loss order is an order that traders place when buying or selling assets. The order is placed with the exchange/broker to execute the trade when it reaches a specific price.
The trader decides the trigger price by using the market analysis, skills and knowledge they possess.
Many traders refer to the price as the stop-loss trigger price. It is the price of buying and selling the asset to have the desired profits. To have a better understanding of the fundamentals of stop-loss trigger price, we have a brief analysis.
So, let’s analyse the concept of stop-loss trigger price.
What is Stop-loss Trigger Price?
The stop-loss trigger price (SLTP) is the price that traders mention when using the stop-loss order. The order when triggers get forwarded to the broker or exchange.
They execute the trade when the price of the asset reaches the stop-loss trigger price.
The stop-loss order is an advance facility of the broker to minimise the losses. It restricts the position’s loss automatically.
The order remains active till it meets the stop-loss trigger price—a reliable service of the brokers and exchanges for their clients.
Example of Stop-loss Trigger Price
Mona buys ten shares of NMN company at $500. She believes that the price of the shares will increase in the following days. But, on the safe side, she uses the stop-loss order to prevent unnecessary losses.
Using the order type, she places the stop-loss trigger price of $480 and the limit pricing of $460. When the price of the share reaches $480, it will execute and deliver it to the broker or exchange.
So, when the exchange or broker finds a buyer at a limit price of $460, it will execute that. Thus, protecting the trader against future loss.
It is an excellent tool for traders to have secure trading in the market.
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Why use Stop-loss Trigger Price?
A Stop-loss order is a free tool for the trading service of the brokers. The tool works automatically without the need for a trader to monitor it. Instead, they can set the SLTP and limit the price to execute the trade.
Also, they can profit from their investments. So it is more like an insurance policy without any down payment.
The trader has to place the trade and set the price limits to avoid loss. Moreover, the stop-loss order works on software and does not involve any emotion when trading.
Hence, making it more convenient for traders to control their emotional trading. The decisions are free of any biases or faults on the side of the trader.
Many traders try to profit by investing in the same assets again and again. But unfortunately, the guilt never goes, and to avoid that, traders can apply a stop-loss trigger price.
Besides, the technology works for all types of traders. Be it active traders or long-term investors; they can use stop-loss trigger prices for any duration.
However, more than the SLTP, the confidence and knowledge of traders are essential to gaining profits.
Disadvantages
Stop-loss trigger price has a lot of uses for the traders. But, these also carry some drawbacks. It is a software tool and can get triggered out of a slight market fluctuation.
It reduces the potential of the trader to earn profits. Moreover, the investment approach of traders is the basis of earning. Therefore, if the trader has less knowledge, they may end up losing.
The order does not suggest the trader, mostly active traders go for a 5% stop-loss trigger price. In contrast, investors use 15% to 20% SLTP. These are the rough ideas of the trade.
Also, the stop-loss order becomes a market order once it triggers price. Thus, traders sell at low or high prices without any thoughtful steps.
Conclusion
A stop-loss trigger price is a great way to invest in the market and ensure profits. Traders need not monitor their trades daily and reduce the loss. Thus, the order type acts as a risk management tool for traders.
However, very few traders are aware of its proper use and fundamentals. The article discusses stop-loss trigger price and the order type and explains it with an example.
Besides, it gives reason to use the technology with its disadvantages to make the best use. But, overall, it is an excellent service provided by the brokers and exchanges.
