A stop-loss order is an instruction to your broker to sell a share automatically if its price falls to a level you choose. It is designed to limit your loss on a trade without you having to watch the market all day.
What a stop-loss order is
You set a trigger price below the current market price. While the share trades above the trigger, nothing happens. If the price falls to the trigger, the order is activated and sent to the exchange as a sell order. Stop-losses can also protect profits: if a share has risen, you can place a stop-loss above your purchase price to lock in part of the gain.
How it works in India
Indian brokers offer two main types. A stop-loss limit order (SL) has a trigger price and a limit price: once triggered, it becomes a limit order that sells only at the limit price or better. A stop-loss market order (SL-M) becomes a market order once triggered and sells at the best available price. Exchanges have restricted SL-M orders in some segments, so check what your broker allows.
Regular stop-loss orders are often valid only for the day. Many brokers also offer GTT (Good Till Triggered) orders, which stay active for longer periods until the trigger price is reached, useful for long-term holdings.
A simple example
You buy a share at ₹500 and decide you will not accept a loss of more than 10%. You place a stop-loss limit order with a trigger of ₹450 and a limit of ₹448. If the price falls to ₹450, your order activates and sells at ₹448 or better. If the price only dips to ₹460 and recovers, nothing happens.
Limitations to know
Gaps: if bad news comes overnight and the share opens at ₹420, far below your trigger, a stop-loss market order sells around ₹420, and a stop-loss limit order with a ₹448 limit may not execute at all. Volatility: a stop set too close may be triggered by normal daily swings, selling a good share just before it recovers. Circuits: if a share hits its lower circuit with no buyers, your order may not be filled.
Trailing stop-loss
A trailing stop-loss moves up as the price rises, staying a fixed amount or percentage below the highest price reached. It aims to protect gains while letting profits run. Some platforms offer it automatically; others require you to adjust the stop manually.
Why it matters for investors
Stop-losses bring discipline: they force you to decide in advance how much loss you will accept and remove emotional hesitation. They are most commonly used by active traders; long-term investors often rely more on research and diversification, though some use wide stops or GTT orders.
Setting a sensible stop-loss
A practical approach is to look at how much a share normally moves in a week or month and set the stop outside that ordinary range, while keeping the possible loss within what you can accept. Volatile small companies usually need wider stops than steady large ones. Decide your stop level before buying, not after the price has already started falling.
Common misconceptions
"A stop-loss guarantees my exit price." Gaps and circuits can cause worse prices or no execution.
"Tighter stops are safer." Very tight stops trigger on normal noise.
"Stop-losses work forever." Many expire at day's end unless placed as GTT orders.
Frequently asked questions
What is a trigger price?
The price at which your stop-loss order is activated.
What is the difference between SL and SL-M?
SL becomes a limit order; SL-M becomes a market order once triggered.
What is a GTT order?
A broker feature that keeps an order active until its trigger is hit, over a longer period.
Where should I place a stop-loss?
Based on how much loss you can accept and how much the share normally moves.
How to use this on PositoAI
PositoAI does not place orders; that happens with your broker. Use PositoAI to research companies and track them in your Watchlist, so you notice important changes such as new red flags.
Summary
A stop-loss order sells a share automatically when its price reaches a trigger you choose, limiting losses or protecting gains. In India, SL orders use trigger and limit prices; SL-M orders sell at market once triggered; GTT orders last longer. Gaps, circuits and tight placement can cause unexpected results, so set stops thoughtfully.