Our word of the day is “Stop Loss” Stop-Loss is also known as Stop-Loss order

is a tool that traders make in order to prevent or minimize loss and risk. An order placed

with a broker to sell a security when it reaches a certain price. A stop-loss order is designed

to limit an investor’s loss on a position in a security. Although most investors associate

a stop-loss order only with a long position, it can also be used for a short position,

in which case the security would be bought if it trades above a defined price. A stop-loss

order takes the emotion out of trading decisions and can be especially handy when one is on

vacation or cannot watch his/her position. However, execution is not guaranteed, particularly

in situations where trading in the stock is halted or gaps down (or up) in price.

With a stop-loss order for a long position, a market order to sell is triggered when the

asset trades below a certain price, and it will be sold at the next available price.

This type of order works well if the market is declining in an orderly manner, but not

if the decline is disorderly or sharp. Traders also use stop-limit orders which work more

effectively in volatile markets.