Stop-loss orders are a vital part of the trading and risk management mechanism on the Angel One app. You may use them to limit your losses to a particular level when the market is facing a much higher level of losses.
What is a Stop-loss Order?
A crucial part of stop-loss orders is Trigger Price. A stop-loss order allows traders to limit their losses by placing an order when a specific trigger price is reached. When the security price reaches the trigger price, the stop-loss order starts getting executed automatically, without the need for any human intervention.
There are two types of stop-loss orders:
Stop-loss Market Order: Only trigger price involved
In this case, once the trigger price is reached, the stop-loss order gets converted into a market Order and gets executed as fast as possible at the best price.
Stop-loss limit order: Trigger price and limit price involved
In this case, when the security price reaches the trigger price, the stop-loss order gets converted into a limit order and gets executed at the limit price itself or a better price than the limit price.
However, one must remember that even if a stop-loss order gets triggered, there’s no guarantee of execution of the order if the price moves too rapidly.
Check out key FAQs related to stop-loss orders here.
How Does a Stop-loss Order Work?
Consider this example: You have a buy position of stock ‘X’ at Rs. 100 and wish to place a sell stop-loss order for stock X at Rs. 95. This is a sell stop-loss order, as you need to sell the asset to close your position.
For a sell stop-loss market order:
The Trigger price will be Rs. 95. This means that when the Last Traded Price (LTP) hits Rs. 95, a sell market order will be activated and the order will be executed at the market price.
For a sell stop-loss limit order:
The trigger price will be Rs. 95. Let’s keep the Limit Price at Rs. 94. (Remember, for a sell stop-loss limit order, the trigger price is greater than or equal to the limit price).
When the LTP hits Rs. 95, a sell limit order gets activated, and your order will be executed at the next available bid above the limit price of Rs. 94. In this case, your stop-loss order may get executed at a price greater than or equal to Rs. 94.
Note: From the above example, if the current market price falls below Rs. 94 and doesn’t cross Rs. 94 at any time during market hours, your stop-loss order will not be executed.
Now let’s consider, you have a sell position of stock ‘X’ at Rs. 100 and wish to place a stop-loss order at Rs. 105. This is a buy stop-loss order as you are buying the asset to square off your position.
For a buy stop-loss market order:
The trigger price is Rs. 105. So, when the market price reaches Rs. 105, it will trigger a buy market order, and your order will be executed at market price.
For a buy stop-loss limit order:
Let’s say you have set the trigger price at Rs. 105 and the limit price at Rs. 106 (for a buy stop-loss limit order, the trigger price is less than or equal to the limit price ).
Hence, when the market price reaches Rs. 105, the buy limit order will be activated, and your order will get executed at the next available ask/offer below Rs. 106. In this case, your stop-loss order may get executed at a price less than or equal to Rs. 106.
Note: From the above example, if the current market price doesn’t go below Rs. 106 at any time during the market hours, your position will remain open.
How to Place a Stop-loss Order with Angel One?
You can place a stop-loss Order by following these simple steps on Angel One mobile application:
- Select the scrip → Click on ‘BUY’ or ‘SELL’
- Click on ‘Smart Orders’ and select ‘Stop Loss Order’
- Enter the ‘Quantity’ and ‘Trigger price’
- Select Limit or Market to place stop-loss limit or stop-loss market order, respectively
- Enter the ‘Trigger Price’.
- Enter the ‘Limit Price’ if you are placing a stop-loss limit order.
- Click on ‘BUY’ or ‘SELL’ and confirm to place your stop-loss order.
Fig.1: Delivery stop-loss limit order (left) and intraday stop-loss market order (right)
What is a Trailing Stop-loss Order?
A trailing stop-loss is an order that allows your stop-loss trigger price to move along with the movement of the LTP. If the security price rises or falls in your favour, the trigger price also rises and falls with it respectively.
If the security price rises or falls against your favour, the trigger price stays in place.
A trailing stop-loss order adjusts the stop-loss price at a fixed percent or value above or below the stock’s market price, depending on the nature of the trade.
How Does a Trailing Stop-loss Order Work?
For a Buy Position of stock X at a market price of Rs. 100, consider the stop-loss trigger price fixed at Rs. 90 and the trailing stop-loss jump price fixed at Rs. 5:
- If the LTP of ‘X’ falls to Rs. 90, a sell market order is sent, and your order is executed at market price.
- If the LTP of ‘X’ increases to Rs. 120, the sell stop-loss order adjusts to the trigger price of Rs. 110.
- If the LTP of ‘X’ increases only to Rs. 103, the stop-loss trigger price still remains at Rs. 90 because the LTP change is less than the trailing stop-loss jump price.
For a Sell Position of ‘X’ at a market price of Rs. 100, consider the stop-loss set at Rs. 110 and the trailing stop-loss jump price fixed at Rs. 5:
- If the LTP increases to Rs. 110, a buy market order will be executed at the market price.
- If the LTP of ‘X’ falls to Rs. 90, the buy stop-loss order will adjust to the trigger price of Rs. 100.
- If the LTP falls to only Rs. 97, then the stop-loss trigger price will remain at Rs. 110 as the change in LTP is lower than the trailing stop-loss jump price.
How to Place a Trailing Stop-loss Order with Angel One?
You can place a trailing stop-loss order as a part of Robo Order in Angel One mobile app following these simple steps.
- Select the scrip and click on ‘BUY’ or ‘SELL’
- Go to Intraday and select ‘Smart Orders’ on the Orderpad.
- Click ‘Robo Order’.
- Click on the checkbox next to trailing stop-loss.
- Enter ‘Stop Loss Price’ and ‘Target Price’ (and ‘Limit price’ in case of a limit order).
- Click on the ‘+’ next to ‘Trailing Stop Loss Jump Price’ and enter the desired trailing stop-loss jump price.
- Click on ‘PLACE BUY ORDER’ or ‘PLACE SELL ORDER’ to place your trailing stop-loss order.
Fig.2: Trailing stop loss order with main order as buy limit order. Notice the ‘+’ sign which will open up the Trailing Stop-loss Jump Price.
Stop-loss is a simple yet effective tool that can be used to minimise your losses and lock in your profits. We hope this article has answered your queries regarding stop-loss orders, and now that you know how to place stop-loss orders with Angel One
What is Stop Loss?
Stop-loss is a tool that investors use to minimise the loss in a trade. Some traders define it as an advance order, which triggers an automatic closure of an open position when the stock price reaches the trigger price level.
Stop loss helps minimise losses but also limit profits from a trade.
What is Trailing Stop Loss?
A Trailing Stop-loss is an order that lets you set a maximum value or percentage of loss you can incur on a trade. If the securiy price rises or falls in your favour, the trigger price jumps with it at the set value or percentage. If the security price rises or falls against you, the trigger price stays in place depending on the nature of the order.
How does a Stop-loss get triggered?
Stop-loss can be your real saviour during a volatile market condition. A price level set at the beginning of the trade allows traders to close their position automatically when the stop-loss is reached. Squaring off takes place at the next price available at the trigger price level and helps limit losses.
What is the 1% rule of trading?
The 1% rule defines the maximum limit of risk one can take in a trade or the risk-per-trade. It implies adjusting your position so that total loss doesn’t cross 1% of your trade value when the stop-loss is triggered. The 1% rule helps avoid significant losses.
Can I use stop-loss in trading with the AngelOne Trading app?
You can place a Stop loss order in AngelOne mobile app by following the below simple steps:
• Visit the AngelOne app and select the stock to Buy/Sell
• Select quantity of the trade
• Set’ Trigger price’
• Enter the price where you want to place stop-loss
• Confirm the stop-loss price, click on “Buy/Sell” and confirm the order
When I am trying to exit my position or place a Stop-Loss order, why is it being rejected?
It may happen if you have a pending Stop-Loss (SL) or an exit order already. With an already pending stop-loss or exit order, you will need extra funds to be able to place a duplicate SL/exit order. If you do not have this extra fund in your account, then your duplicate exit order will get rejected. That’s why we inform you while exiting if there’s a Pending SL/exit order against a position, to avoid any duplicate orders and rejections.
My Stop-Loss (SL) order was triggered but it did not get executed. Why did this happen?
There could be 2 major reasons behind this:
- The asset may be lacking a buyer/seller at the defined stop-loss limit price due to a lack of market depth. Orders are queued while they are being purchased or sold.
- For example: Let’s say there are 50 buyers and 100 sellers who are waiting to trade on a scrip at ₹90. Upon reaching ₹90, the first 50 sellers’ orders will be executed, and the remaining 50 sellers will have to wait for new buyers. In case you are one of those remaining 50 sellers, your sell order will remain pending if there are no corresponding buyers and vice versa.
- The price movement during high volatility does not fulfill certain criteria e.g. suppose you have placed a sell stop-loss with trigger Price at ₹100 and limit price at ₹100. Now imagine that the LTP touched ₹100 (here, the SL would be triggered) and quickly went below ₹100 due to high volatility. The limit price of ₹100 means the stop-loss order would get executed at only ₹100 or more. Now this order will be pending as price is below Rs 100 and execution will happen only when price has reached or crossed Rs 100. Hence your stop-loss order was not executed. Due to this reason, we recommend keeping a sufficient gap between the trigger price and limit price to increase the chances of Stop Loss execution during high volatility.
Note: In order to increase the chances of execution, we keep the default value of the limit price 2 ticks away from the trigger price. This is done so that if the LTP moves rapidly after triggering the order, the limit price shouldn’t be a hindrance and the order should still get executed. Also, if you change the pre-set limit price and bring it closer to the Trigger Price, the chances of execution can reduce in cases of volatility.
My stop-loss order got triggered even though the predefined Trigger Price had not appeared. Why?
Chances are that the market price did hit the stop-loss price, albeit momentarily and without you being able to spot it at that moment. Within a second, prices can change multiple times and not all of them are relayed to the Brokers by Exchange, especially during high volatility. As a result, such momentary price fluctuations are not seen anywhere. Price matching and execution of the orders is done by the Exchanges and not the Broker.