Example 1: Using a stop-loss order to minimize losses<\/h4>
Let\u2019s say you buy 1 stock for $200. You expect it to rise in value, but you want a safety net in place in case the stock experiences a rapid price drop for some reason.<\/p>
By setting a stop-loss order at $190, you can cut your losses in a falling market. When the price of that stock hits $190, your stop-loss order converts to a market order to sell your stock.<\/p>
Example 2: Using a stop-loss order to lock in profits<\/h4>
Let\u2019s say you bought 1 stock for $150 in 2024. By November 2025, your stock has risen in value by 40% and is now worth $210.<\/p>
You then think that stock still has room to increase further in price, so you don\u2019t want to sell your share just yet. But you also want to lock in some of the profit you\u2019ve already made in case that stock\u2019s price starts to fall and wipe out the gains you haven\u2019t yet realized. By setting a stop-loss order at $200, you will trigger a sale of the stock if its price reaches $200, locking in a big chunk of your profits.<\/p><\/div><\/article>
3 types of stop-loss orders<\/h3>
There are three main types of stop-loss orders you need to be aware of.<\/p>
1. Standard stop-loss order<\/h4>
This is the simplest form of a stop-loss order. It allows you to set a stop price, and when the stock in question reaches that price, the stock will be automatically sold at the best available price.<\/p>
You can also place buy-stop orders, allowing you to automatically buy a stock when it reaches a predetermined price level.<\/p>
2. Stop-limit order<\/h4>
A stop-limit order offers a key advantage over a standard stop-loss order. It allows you to set two prices:<\/p>
- The stop price<\/li>
- The limit price, which is the minimum price at which you are willing to sell the stock<\/li><\/ul>
While a standard stop-loss order converts to a market order when triggered, a stop-limit order converts to a limit order. This ensures that in a rapidly declining market, you don\u2019t sell your stock for a lower price than you\u2019re happy with.<\/p>
For example, if you have a stock valued at $210, you could set the stop price at $195 and the limit price at $192. So if that stock\u2019s price falls below $195, you will only sell your stock if they can be sold at $192 or better.<\/p>
3. Trailing stop-loss order<\/h4>
A trailing stop is a useful order type for protecting profits. When the price of a stock increases, the stop price is automatically adjusted to follow behind at a fixed distance.<\/p>
You can set a trailing stop a certain percentage below the stock price or a specific dollar amount below.<\/p>
For example, let\u2019s say you buy a stock at $100 and set a trailing stop at 5%. Initially, the order would be triggered if the price falls to $95. But if the stock increases to $110 the stop price increases to $104.50, and if the stock rises to $120 the stop price increases to $114\u2014and so on.<\/p>
What\u2019s the difference between a stop-loss and limit order?<\/h3>
A stop-loss order triggers a market order when a preset price of a stock is reached. A market order then buys or sells the stock straight away at the best available price.<\/p>
Meanwhile, a limit order allows you to specify the price at which you want to buy or sell a stock. Your order is then automatically executed when the price you want (or a better one) becomes available.<\/p>
How to place a stop-loss order<\/h3>
The exact steps for placing a stop-loss order vary between trading platforms. But as a general guide, here\u2019s what you need to do.<\/p>
Step 1: Open a brokerage account<\/h4>
Choose a brokerage platform that allows you to place stop-loss orders, sign up for an account and fund your account before you can start trading. We compiled a list of platforms that support stop-loss orders below:<\/p>
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