Please eli5, would somebody be so kind to explain what a stop loss is to me?
I keep reading and I just go huh. Numbers and economics ive always found confusing. Is a stop loss a point at which if the stock drops you go ok I call it quits and you don’t panic or buy or sell anything after said point? Or is it a point where if said stock drops to a certain point, an automatic function is in place to purchase a set amount of said stock? I don’t know. Any explanation at all would be appreciated!
Edit: Thankyou Thankyou Thankyou for all your replies! I appreciate it and you’ve given me hope that I can learn new things I otherwise would’ve had no idea where to start with
In: 3
Many traders put in a limit-sell order for some price below what they paid to minimize their losses.
Lets say you buy a stock for $100.
You would then set a “stop loss” sell order at $85 to automatically execute if the market price hits $85 or less, minimizing your losses to $15.
This can protect you from massive downside if the stock craters while you’re not paying attention.
It’s not without risk though, sometimes these automatic orders trigger a slide that then sets off *more* automatic orders. This cascades downwards and people accidentally sell their stocks for well below “market” price. The price momentarily dives massively, and then recovers within a few hours once the automated selling is exhausted.
Large funds are sometimes accused of doing this on purpose to “stop loss raid” a stock and buy it for cheap by triggering a cascade.
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