Winning Bizness Desk

Mumbai - Stop loss is used repeatedly while investing in the market. Whenever you buy a stock, the stop loss comes into picture at least once. Stop loss is very important for the short term but if someone wants to invest for the long term then it is not of much importance.

Avoid losses during the ups and downs

Stop loss is the price at which you sell your shares. By selling the shares at the stop loss price, you are saved from big losses. The stop loss of a stock is the price at which you do not lose much. In effect, you limit the potential loss of a stock at its current price. Only after this you put a stop loss, which reduces your loss. Stop loss is used so that you can avoid losses during the ups and downs of the stock market. The stock market is largely driven by emotions. In such a situation, as much as you gain from investing in stocks, you can also lose as much.

Stop loss is the way to reduce this loss. There is also an advantage of investing that if you do not trade regularly and cannot monitor your investments regularly, then it can prove to be beneficial for you. Stop Loss can actually save you from many risks in this situation.

For Instance ...

Your stockbroker gives a target price for each share. Suppose you want to buy shares of a company. Right now it is priced at Rs 10. The broker will tell you that in three months its price will increase to Rs.12. This means that you have bought this stock at a price of Rs 10 with a target of Rs 12. You can make profit by selling this stock when it reaches the price of Rs.12.

This stock can also fall due to any reason. If its price is less than Rs 10, you will have to bear the loss. You are advised to put a stop loss to avoid loss. Suppose in the case of this stock, you are advised to put a stop loss at Rs.9. This means that due to weakness in the shares, it will be right to sell it for Rs 9.