What is a stop loss?

A stop loss is an order to sell an existing shareholding which is triggered if the bid price falls to, or below, a price (the stop price) set by you. This could be used when you buy a share to give you some protection and help minimise the loss should the share price fall.

For example, if you own shares of XYZ Co., which is currently trading at £5, and want some protection against a big decline, you could enter a stop-loss order to sell your XYZ holdings at £4. If XYZ traded below £4 at any time before the stop-loss expiry date (90 calendar days), your stop-loss order would be triggered and converted into a market order to sell XYZ at the next available price. If the next available price was £3.90, your XYZ shares would be sold at £3.90.

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