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How is Stop loss different from regular order?
A Stop loss order allows the client to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price specified by the investor in the form of 'Stop Loss Trigger Price'. When a stop loss trigger price (SLTP) is specified in a limit order, it becomes one conditional on the market price of the stock crossing the specified SLTP. The order remains passive (i.e. not eligible for execution) till the condition is satisfied. Once the last traded price of the stock reaches or surpasses the SLTP, the order becomes activated (i.e. eligible for execution by being taken up in the matching process of the exchange) and then behaves like a normal limit order. It is used as a tool to limit the maximum loss on a position.
Examples : 'A' short sells ABC shares at 325 in expectation that the price will fall. However, if the price rises above his buy price, 'A' would like to limit his losses. 'A' may place a limit buy order specifying a Stop loss trigger price of 345 and a limit price of 350. The stop loss trigger price (SLTP) must be between the last traded price and the buy limit price. Once the market price of Reliance reaches SLTP i.e. 345, the order gets converted to a limit buy order of 350.
Examples : 'A' short sells ABC shares at 325 in expectation that the price will fall. However, if the price rises above his buy price, 'A' would like to limit his losses. 'A' may place a limit buy order specifying a Stop loss trigger price of 345 and a limit price of 350. The stop loss trigger price (SLTP) must be between the last traded price and the buy limit price. Once the market price of Reliance reaches SLTP i.e. 345, the order gets converted to a limit buy order of 350.
Last updated: 8 Months Ago
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