Monday, 26 March 2018

Understanding the Importance of Stop Loss Order

Investing in Stock Market like in any other business needs one common principle to follow how good you manage your business risk. You need to do your homework before getting into the world of stock investments. No matter how much you analyse the market trends, there is always a risk that the market will show high volatility. In such situations, using a stop loss can help you sail through. With stop loss, you can limit the amount of money you lose on a stock. Stop loss helps to protect your assets.

What Is Stop Loss?
Stop loss is an order placed with the stock broker to buy or sell a stock when it reaches a certain price. A Stop Loss Order is designed to limit a investor’s loss on a position of a Stock. In simple words, the purpose of stop loss is to get you out of the stock position before the price falls further. It indicates maximum loss that a Investor/trader is willing to absorb.

How does Stop Loss Works?
There is no bench mark for using Stop Loss at any level, Its all your trading strategy. However If you are using Online Trading Platform, you may set Stop Loss according to your risk appetite. If you are investing with dealer/trader assistance then may ask your trader to set stop loss order. If you are an active trader, you might place a stop loss at 5% below the current market price or the price at which you bought the shares. Similarly, if you are a long-term investor, you might place the stop loss at 15% or more.  Its all about your trading strategy.       

Importance of Stop Loss:
Having understood the basics of Stop Loss, Its significant how best we utilize this tool and why it’s critical for a trader. Here are the reasons why Stop Loss is very important.
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  •      Every trader can invest in market only with limited capital, primary aim is to protect your capital. The only measurable tool is Stop Loss to restrict your potential losses.
  • ·     Stop Loss infuses discipline in the trading for any investor. One of the key traits of Smart Trader.
  • ·       By placing Stop Loss Order on all open orders, you can measure your potential losses & figure out the capital at your risk.
  • ·    Stop Loss enables blend of capital. The aim is to keep rolling your capital and compounding your returns on regular basis.
  • ·     Stop Loss Order’s are the best defense against Volatility. Stock Market  lived with Volatility as a  default, only way to protect your risk.      
Protecting your investments is a smart way to invest in stock market. If you are not willing to hold your investments for long, then it is a good idea to set stop loss. Stop loss is a great tool if used properly, yet many investors fail to use it. You should think of stop loss like an insurance policy, it costs you nothing but in situations when your call on the market goes wrong, it can protect you and save investments.

At AZEE Securities, we encourage novice traders and investors. With our experienced team’s proven and profitable trading strategies which can help you make better trading and investing decisions.

#PSX   #AZEESECURITIES   #KSE100Index.

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