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A stop-loss is used to specify a price at which a trader wishes to sell their stock or security. Typically, stop-losses are used to protect long positions; for example, a trader may place a stop-loss for 10% below the current price.
Stop-losses do not guarantee the price at which the sell order will execute. If the price gaps past a stop-loss, it becomes a market order and is often executed at a highly unfavorable price. Most brokers allow traders to specify whether or not a stop-loss can be activated during the after-hours sessions. Because after-hours trading can be unpredictably volatile, many traders choose to disable their stop-losses for the session.
A trailing stop is a stop-loss where the exit price automatically moves up with a rise in share price but does not decrease with a drop in price. |
