Stocks are the most popular type of investment across the US, and there are tons of options to choose from. From GE to Uber, you can’t go wrong with monitoring and buying the top stocks available… as soon as you sell them when they’re in the optimal stock position.
Read on to learn how stock stop-loss orders can help with stock risk management so that you can turn the highest possible ROI.
What Is a Stock Stop-Loss Order?
Investors must sell stocks when the market is at a high. This is the best way to yield a high return on the investment.
Unfortunately, maximizing your return therefore requires a lot of stock market monitoring. You need to be vigilant about assessing facts and figures. You also need to be able to make quick decisions about when selling is a lucrative option.
Stock stop-loss orders are a way around these challenges. When an investor purchases stocks from a broker, they can order that broker to sell the stock once it reaches a certain price. This stops the investor from losing money because they failed to sell the stock while at its highest market point.
These order types are also great for those purchasing stocks to sell later. Investors can instruct brokers to purchase specific stocks when they’re at a low price, too. This is an ideal way to save money upfront assuming that you know what shares you want to buy ahead of time.
Benefits and Downsides
There are many advantages to stock stop-loss orders, including:
- Immediately exiting stock positions that aren’t performing in the expected way
- Stopping spur-of-the-moment emotions (like anxiety or excitement upon seeing current stock prices) from impacting investment decisions
- Ensuring that investors are disciplined about buying and selling stocks
- Requiring very little monitoring, which makes passive investment easier
- A lack of upfront charges from brokers, so stop-loss investments are free to make
However, there are also some reasons that investors might think twice:
- They can trigger a sale based on a short-term fluctuation that immediately improves
- Brief sell-offs from other investors can trigger stop-loss orders
- Hedge fund operators sometimes take advantage of stop-loss orders to engage in “stop hunting”
Despite these cons, stock stop-loss orders are usually beneficial for investors who don’t want to monitor all holdings daily. They’re also great for those who want to limit losses on security positions that make unfavorable moves.
Deciding on Your Price Level
There are several factors to consider when determining the best price for a stop-loss order. Your wealth-building goals should be the primary consideration. You also must think about your personal risk tolerance so you don’t lose more than you have.
The volatility of your chosen stocks should also make a difference. Use analytical tools like resistance and support levels to help you find a good price for an order on a given security.
Figure Out Money the Right Way
Stock stop-loss orders are a great way to stay on top of your investments. They ensure that you buy and sell stocks at the optimal time and don’t need to monitor trends too frequently.
Now that you know how these orders limit potential loss, contact me and check out the “Figuring Out Money” YouTube channel.
