A 'stop-loss' order is a conditional order to sell a security once it reaches a certain price. It operates as such:
- The investor sets a 'trigger price' for the security and submits the order.
- If the share price reduces to the trigger price, the order is put into the market
- The now-live sell order is submitted to market to be filled.
This type of order is used to limit an investor's losses and doesn't require the investor to be actively watching the market.
What are the different 'price type' options?
There are two different 'price type' options available for stop-loss orders - 'Market then Limit' and 'Limit'
Market Then Limit
This will place the order in the market at the last price at which the shares traded.
If the 'trigger price' is reached the order will enter the market and fill at market price. The limit condition ensures the order is not filled if the share price falls below the best bid at the time of order submission.
A Limit sell order allows the seller to specify a 'limit' price, which is the minimum amount they are willing to accept per-share. The shares will then be sold to any buyer willing to pay more than the specified limit, beginning with the highest bid first.
Please note: if you use the 'Limit' price type and the stock price drops quickly or opens lower than your limit, your order may not be filled as there will be no shares available at the required price. To prevent this from occurring you can set your limit lower than your 'trigger price' or use the 'Market then Limit' price type.
How do I enable the stop-loss feature in my account?
As of January 2022, stop-loss orders are enabled by default on all SelfWealth client accounts.