Stop-loss Order: Cap Your Losses

Risk management is a critical part of your trading strategy. A Stop-loss order is an effective tool to minimize risks when the market starts moving in an unfavourable direction. Keep reading if you would like to understand more about Stop-loss orders and how you can benefit from them.

What is a Stop-loss Order?

A Stop-loss order allows traders to limit their losses by exiting a trade when a specific price known as trigger price is reached.

Using  Stop-loss orders can help to reduce your chances of losses in a trade.

A very important part of stop-loss orders is Trigger Price.  This refers to the desired price at which you want your order to be executed. When the security price reaches the trigger price, the stop-loss order is activated.

There are two types of Stop-loss Orders:

Stop-loss Market Order: Only Trigger price

In this case, once the trigger price is reached, the Stop-loss Order gets converted into a Market Order.

Stop-loss Limit Order: Trigger price and Limit price

In this case, when the security price reaches the trigger price, the Stop-loss Order gets converted into a Limit Order.

How does a Stop-loss order work?

Consider this example: You have a buy position of stock ‘X’ at ₹100 and wish to place a sell Stop-loss order for stock X at ₹95 then,

• For a Sell Stop loss-Market order:
  • Trigger price = ₹95

What this means is that when the Last Traded Price (LTP) hits ₹95, a Sell Market order will be activated, and your position will be squared off at the available bid price.

• For a Sell Stop loss-Limit order:
  • Trigger price = ₹95
  • Let’s keep the Limit Price at ₹94. (Remember, for a sell Stop loss Limit Order, Trigger Price => Limit Price ).

When the LTP hits ₹ 95, a Sell Limit Order gets activated, and your order will be squared off at the next available bid above the limit price of ₹94. In this case, your Stop loss order may get executed at a price => ₹94.

Note: From the above example, if the current market price falls below ₹94 and doesn’t cross ₹94 at any time during the market hours, your stop-loss order will not be executed.

Now let’s consider, you have a sell position of stock ‘X’ at ₹100 and wish to place a stop-loss order at ₹105.

• For a buy Stop loss-Market order, the trigger price is ₹105. So, when the market price reaches ₹105, it will trigger a Buy Market Order, and your position will get squared off at market price.
• For a buy Stop loss-Limit order, let’s say you have set the trigger price at ₹105 and Limit Price at ₹106 (For a buy Stop loss Limit Order, Trigger Price < =Limit Price ).

Hence, when the market price reaches ₹105, the buy limit order will be activated, and your position will get squared off at the next available ask/offer below ₹106. In this case, your Stop loss order may get executed at a price <= ₹106.

Note: From the above example, if the current market price doesn’t go below ₹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 → to click on ‘BUY’ or ‘SELL’
• Go to the ‘order’ window and select ‘Stop-loss’
• Enter the ‘Quantity’ and ‘Trigger price’
• Select Limit/Market to place Stop loss Limit/ Stop loss Market order, respectively
• Enter the ‘Price’ if you are placing a Stop-Loss Limit Order
• Click on ‘BUY’ or ‘SELL’ and confirm to place your Stop-loss order

Trailing Stop loss Order:

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 security 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.

A Trailing Stop loss Order adjusts the stop price at a fixed per cent or value above or below the stock’s market price, depending on the nature of trade.

How does a Trailing Stop loss order work?

For a Buy Position of stock X at ₹100, consider the Trailing Stop-loss fixed at ₹ 10.

• If the LTP of ‘X’ falls to ₹90, a Sell Market Order is sent, and your position gets squared off at market price.
• If the LTP of ‘X’ increases to ₹120, the sell Stop-loss order adjusts to the trigger price of ₹110.

For a Sell Position of ‘X’ at ₹100, consider  the Trailing Stop-loss  set at ₹10

• If the LTP increases to ₹110, a Buy Market Order will be executed at market price.
• If the LTP of ‘X’ falls to ₹90, the Buy Stop-loss order will adjust to the trigger price of ₹100.

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 —> Select ‘ADVANCE TRADE’ on the order window
• Go to Robo Order
• Click on the checkbox next to Trailing stop-loss
• Enter ‘Trigger price’ and ‘LTP jump price’
• Click on ‘BUY’ and confirm to place your Trailing stop-loss order

Stop-loss is a simple yet effective tool that can be used to minimize 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.

Happy Trading!

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