Stop-Loss
This order type is a conditional stage that can be applied to positions to close a trade if the trader’s principal value falls below a specified threshold.
This conditional order type sets a price at which a specific set of assets are liquidated. It is primarily used to safeguard the principal value of a portfolio’s holdings by capping the possible losses in a specific position.
The main disadvantage of this order type is that momentary volatility could trigger the execution of this order and thus in hindsight have needlessly liquidated the trader and solidified momentary paper losses into real ones.
How it is used
Alexander has been purchasing ADA as of late, but he is doing it with money that he had originally earmarked for taxes. Given that tax payments are soon to be due, he can only afford to lose a certain amount. He has placed a stop-loss that will automatically sell his position if it were to go below a monetary value - that way he can all but guarantee that at least his losses won’t impact his ability to pay his taxes
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