How to place a Stop Loss order?

How to place a Stop Loss order?

A stop-loss order is usually placed to minimize losses on a position. It allows you to place an order only when the market price of the stock reaches or crosses a specified price point also known as the ‘SL Trigger Price’.

There are 2 types of Stop-Loss orders:
1. SL order (Stop-Loss Limit) = Price + Trigger Price
2. SL-M order (Stop-Loss Market) = Only Trigger Price

Buy order:
• A buy SL order is placed when a user has a sell position on a stock.
• For example, let us assume you have shorted 500 shares of Infosys at INR 1600 per share. You anticipate the price to decrease, however, you do not want to incur a loss of more than INR 5 per share. By placing a buy stop-loss order, you are instructing the trading terminal to exit the shares in case the price of Yes Bank increases to 1605.
• This means you have gone short on Infosys at INR 1600 and the maximum loss you are willing to take on this trade is INR 5 (1605-1600) per share. As long as the price of the stock does not increase beyond 1605, the stop loss order will not be executed.
• The trigger price is specified so that the SL order would transition from passive to an active order. The trigger price has to be lower or at least equal to the SL price. For example in this case, when the stock price increases to INR 1604, the trigger is hit and the stop-loss order gets activated.
• For a Buy Stop Loss order, SL price > SL trigger price.

Sell order:
• A sell SL order is placed when a user has a buy position on a stock.
• For example, let us assume you buy 100 shares of company Globus Spirits Ltd at ₹140 per share. You anticipate the price to increase however you do not want to incur a loss of more than ₹10 per share. By placing a sell stop-loss order, you are instructing the trading terminal to exit the shares in case the price of Globus Spirits drop to 130.
• This means you have gone long on Globus Spirits at 140 and the maximum loss you are willing to take on this trade is INR 10 (140 -130) per share. As long as the price does not fall below 130, the stop loss order will not be executed.
• The trigger price is specified so that the SL order would transition from passive to an active order. The trigger price has to be higher or at least equal to stop-loss price. For example in this case, when the stock price drops to INR 132, the trigger is hit and the stop-loss order gets activated.
• For a Sell Stop Loss order, SL price < SL trigger price.

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