Terms like “stop-loss” and “trailing stop-loss” are all important option trading basics that you need to learn. With the possibility of a market in decline, learning these basic moves will allow you to continue your success. With the right techniques, you can make money no matter what direction the market is taking. In the article “Trailing Stop or Stop Loss?” from the Options Insider, you can read a detailed explanation of both of these essential trading concepts. If you don’t have time, read the brief definitions below.
What Is A Stop-Loss Order?
A stop-loss order is designed to limit your investment risk by setting a predetermined selling point. The selling point you choose will be below the current market price. Once your stock starts to take a plunge, it will be automatically sold before taking your entire investment down with it.
What As A Trailing Stop-Loss Order?
A trailing stop-loss order is similar to a stop-loss order but it is more flexible. Rather than setting a fixed selling point, a percentage-loss or increment-loss becomes the selling trigger. This means that as your stock fluctuates in value, the selling point will trail behind it.