What Is a Stop-Loss Order and How to Use It

Definition

A stop-loss order is an instruction to buy or sell once the price reaches a specified trigger price. Its main use is to limit the loss on an open position without watching the screen all day.

Trigger price and limit price

• Trigger price – the price at which the order is released to the exchange.
• Limit price (SL orders only) – the worst price at which it may then execute.

Example (long position): you bought at ₹500 and want to cap the loss near ₹480. Place a sell SL order with trigger ₹480 and limit ₹478. If the price falls to ₹480, a sell limit at ₹478 is sent. If the stock gaps down to ₹470, the limit order may not fill — the risk of a gap.

SL vs SL-M

Exchanges and brokers restrict SL-M in some segments (for example certain options). Check what your broker supports.

Where to put a stop-loss

There is no universal rule. Traders often use a level that invalidates their idea (below a support level), a fixed percentage, or a multiple of recent volatility. Position size should be set so that the loss at the stop is an amount you accept.

Common mistakes

1. Stops too close – normal price noise triggers them.
2. Moving the stop further away after the price moves against you.
3. Forgetting gaps – overnight news can open the stock well past your stop.
4. Using MIS with a stop and forgetting auto square-off.

Read more: types of orders · intraday vs delivery.