Stop loss orders can have a lot of advantages for investors looking to develop and maintain a consistent trading strategy. There are many benefits to utilizing these types of orders in your portfolio, as well as drawbacks, and an investor should familiarize themselves with the facts prior to utilizing these tools.
One of the keys to using these types of orders is to take a look at a stop loss order example to find out how to use this valuable tool in your portfolio. All you will need to know when placing a stop loss order is what values to fill into the specified fields on the order form. These will be determined by the specifics of your unique trading plan.
It is also crucial to understand some of the drawbacks and disadvantages to using a stop loss order, as they are not always right for every trading style and situation. No matter what your investment objective, it is worthwhile to educate yourself as to how these orders work, and decide if they are the right tools for you.
When To Use A Stop Loss Order: Stop Loss Order Example
A stop loss order can be the most critical defensive tool for investors, as they allow you to lock in potential profits, and cut your losses short. While a stop loss order may be a valuable tool for most investors, it may not be right for some situations.
Many investors prefer using these types of orders as part of a long-term investment strategy. In this stop loss order example you can see how to best implement this tool to insure your portfolio from sudden market downturns.
As an investor, you will need to periodically review the holdings in your portfolio. As time goes on, there may be extenuating circumstances concerning a sector or company that changes the landscape of your investment strategy. Economic concerns, business cycles, and additional outside influence may mean that the reasons for purchasing or holding a security no longer apply.
Stop Loss Order Example And How To Place A Stop Loss Order
For this stop loss order example you must first choose the security for which you will be placing the order. You will then indicate what type of order (but or sell, in this case it would be sell) and how many shares you would like to sell. If you are concerned about temporary market volatility rather than the specific security in question, you may want to sell only a portion of your position in the event of a market rebound.
You will then indicate whether you want to place a market order or a limit order, and this decision will be based on a variety of factors. A market order will be placed when a security falls below a specified price, and will be sold immediately at the market price. With a limit order, you will specify a minimum price for the security to be sold, although this type of order may come with some drawbacks and may be better suited for more experienced investors.
The next step is one that you should give a fair amount of consideration to, and that is deciding the price or percentage to set your stop loss order for. Some factors to consider are the original purchase price of the security, the circumstances affecting the security’s price, and how much of your position you will be selling.
Once you have decided on the specifics, you will enter your criteria with your brokerage either through an online order form, or with your broker directly. Once the order is placed you may have to reset your order on a daily basis, as somebrokerages do not have the option “good until canceled” for stop loss orders. Familiarize yourself with your brokerage’s policies concerning these types of orders.