Stop-loss order

An investor may create a stop-loss order to protect any gains, or to reduce any potential losses. For example, if an investor buys stock at $20, and the share price rises to $100. To protect their returns or minimise losses, they may create a stop-loss order for $80 per share, and if the stock drops to $80 or under, the shares will automatically be sold. To reduce the impact of a falling investment, an investor may decide whether a company or industry is sustainable over the long term, and opt to sell at a set price if it gets too low. Many long term investors never use stop-loss orders, however they can play a role in some short-term investing strategies, or when it’s looking like an investment or sector may flop. An example could be a company that boomed over the Covid pandemic, and dropped significantly after it, as happened with Peloton (PTON). Learn more about stop-loss orders.