What is stop loss

STOP order

With a stop order, your trade will be executed only when the security you want to buy or sell reaches a particular price (the stop price). Once the stock has reached this price, a stop order essentially becomes a market order and is filled. For instance, if you own STRAT which currently trades at $5.60, and you place a stop order to sell it at $5.00, your order will only be filled if STRAT drops below $5.00. Also known as a "stop-loss order", this strategy allows you to limit your losses.

However, this type of order can also be used to guarantee profits. For example, assume that you bought STRAT at $4.50 per share and now the stock is trading at $5.60 per share. Placing a stop order at $5.00 will guarantee profits of approximately $0.50 per share, depending on how quickly the market order can be filled.

LIMIT order

A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. For instance, if you want to buy STRAT which is trading at $5.60, you can set a limit order for $5.50. This guarantees that you will pay no more than $5.50 to buy this stock. Once it reaches $5.50 or less, you will automatically buy a predetermined amount of coins. On the other hand, if you own STRAT trading at $5.60, you could place a limit order to sell it at $6.10. This guarantees that the coins will be sold at $6.10 or more.

One disadvantage of the stop order is that the order is not guaranteed to be filled at the preferred price that the investor states. Once the stop order has been triggered, it turns into a market order, which is filled at the best possible price.