Stop Loss

Stop Loss is a type of order which is placed by a trader with his broker when the trader wants to restrict the downside / loss on the buy trade. The order will get executed only once the price is triggered. While it is usually placed on orders in which a trader has a long position to limit the loss incase of a negative movement on the stock price, it can also be placed on a short position by a trader to buy shares if the price moves upwards after a trade.

For example: A trader has bought 1000 shares of Coal India at Rs.250 per share on 1st April 2019. He puts a stop loss order at Rs.240 making to make sure that the loss is limited to Rs.10,000 [(250-240)*1000] in case the prices fall from his buying price.

Due to the nature of the stop loss being short term, this is recommended for traders and not on investments.