Stop-loss

A stop-loss is an instruction given to a broker to by or sell a stock to limit losses if it moves beyond a certain level.

A stop-loss is an instruction given to a broker to by or sell a stock to limit losses if it moves beyond a certain level.

For example, if you buy a share at 100p but don't want to bear losses of more than 20p (20%), you might put in a stop-loss so that if the shares fall by more than 20%, they are automatically sold. This doesn't guarantee they will be sold at 80p, though, just that the order to sell will be given at this point.

Although brokers advise having stop-losses as a safety net, it is not always a good idea to set them at a price that is too close to the price at which you bought them. This is especially important if the share is volatile, because if the reasons you bought the share still hold good, you may find yourself selling when you don't really need to.

Most Popular

A nightmare 1970s scenario for investors is edging closer
Investment strategy

A nightmare 1970s scenario for investors is edging closer

Inflation need not be a worry unless it is driven by labour market shortages. Unfortunately, writes macroeconomist Philip Pilkington, that’s exactly w…
17 Sep 2021
What really causes inflation? Here’s what prices since 1970 tell us
Inflation

What really causes inflation? Here’s what prices since 1970 tell us

As UK inflation hits 3.2%, Dominic Frisby compares the cost of living 50 years ago with that of today, and explains how debt drives prices higher.
15 Sep 2021
The times may be changing, but don’t change how you invest
Small cap stocks

The times may be changing, but don’t change how you invest

We are living in strange times. But the basics of investing remain the same: buy fairly-priced stocks that can provide an income. And there are few be…
13 Sep 2021