Stop-loss can be a valuable tool and a double-edged sword for your investment portfolio. On one hand, it frees you up from having to monitor your stock holdings every day. But on the other hand, short-term price changes can activate the stop as well, triggering a sale you don’t want. Should you incorporate a stop-loss into your investment strategy toolkit, or stick with regular option trade alerts? The choice is up to you.
A stop-loss order is an agreement with your broker to buy or sell specific security when it reaches a given price. The purpose of a stop-loss is to limit your risk of loss on a security if the price ever starts to tank. When used at the right time and in tandem with other smart portfolio management practices, it can make a world of difference and benefit just about any investor.
Stop-loss orders probably won’t benefit you if you’re the type of investor who likes to buy stocks and hold them forever. They also don’t guarantee your success in the stock market. You still have to make sound investing decisions. A stop-loss won’t save you from an investment that was bad in the first place.
But for a lot of people, stop-losses are the best of both worlds. Used correctly, they can especially be helpful for beginners. New traders have a lot to keep track of, which can be overwhelming. Because of this, new traders tend to forget about risk management. Stop-losses add in fail-safes to help new traders stay on top of their level of risk.
All in all, stop-loss orders aren’t for every investor, nor are they for every investment portfolio. But in the right hands, they’re a great asset. However, they won’t replace your regular option trade alerts.
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