With so many things for consideration before investment, the stop-loss order may be one of those factors, which if used appropriately, can make a world of a difference on your investment portfolio.
One of the frequently used term in trading exchanges. It is a way of customizing the net loss on your investment. Or in other words it applies that you can put a check upon your loss on investment.
Suppose setting up a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10% only. For example, let assume you just purchased TESLA shares at $50 per share. Soon after buying the stock, you may place a stop-loss order with broker. In case you assigned the order at 10% you may enter a stop-loss order for $45. (i.e 10% of $50). In this case, if the stock falls below $45, your shares will then be sold at the prevailing market price.
A stop loss order helps you to define your risk ratio and the amount you are prepared to lose as part of a single trade. One major advantage of using a stop-loss order is that we don't need to monitor our holdings daily. The stop loss automatically trigger a sale, once it hit the assigned criteria.
This stop-loss functionality in trading have certain drawback too. In volatile markets you may find that your stop loss is triggered too early following a short-term spike in the markets, only to watch the value recover or move into profitable territory over the medium-to-long term.
There are pros as well cons. Investing in cryptocurrency or stocks is always a gamble. Anything could happen, you just need to have a market strategy to get maximum roi on your money. The best way to manage your open positions is to activate stop-loss and minimize extreme losses.