A stop loss order is generally initiated by the customers when they want to safe guard their investment in a particular position. In an ever changing market this can ensure you do not have to keep monitoring the change in the prices on the ticker.

Since it is practically impossible to forecast a particular price for a scrip on a particular day, a stop loss is always placed for a range between the trigger and the limit price. The trigger price is the price that would trigger the stop loss and the limit price is the highest/lowest range of the stop loss. The trade is generally executed on the best price between the trigger and the limit price.

There are two types of stop loss orders:

a)Buying stop loss order:Generally used for sell transactions (Shorting of positions) when you believe that the price for a particular share will drop, you have the option of selling/shorting the share to book profits in a falling market, however, against your prediction if the price of the share increases you need a stop loss to safe guard the money invested, in such a case a stop loss is placed for a higher price than the Current Market Price (CMP) or Last Traded Price (LTP) and is known as the Buying stop loss order.

b) Selling stop loss order:The most commonly used stop loss order, generally used when a customer buys a particular scrip and the price of it is dropping at a more than expected rate or in general just to be safe you can place a selling stop loss order so that you do not incur huge losses when you do not have the time to monitor the ticker for the price changes.

Let us understand by using the following table:

Please Note: A stop loss order is valid only for the day it is placed and gets expired after the market is closed.