You can use stoploss orders to limit your losses when you are concerned that prices may move against your trade. A stoploss order is a buy/sell order that automatically executes when the price reaches your predetermined risk level.
For example, if you purchase a stock at ₹100 and want to limit your loss at ₹95, you can place an order to sell the stock as soon as its price reaches ₹95. This order is called a 'stoploss' because it aims to prevent losses exceeding your predetermined risk.
Types of stoploss orders
You can choose between two types of stoploss orders:
- SL order (Stoploss Limit) = Price + Trigger price
- SL-M order (Stoploss Market) = Only trigger price
How stoploss orders work
For buy positions (sell stoploss)
When you hold a buy position, you maintain a sell stoploss to protect against price declines.
Example: You bought a stock at ₹100 and want to set a stoploss at ₹95.
SL-M order type:
- You place a sell SL-M order with a trigger price of ₹95.
- When the price reaches ₹95, the system sends a sell market order to the exchange.
- Your position gets squared off at the prevailing market price.
SL order type:
- You place a sell SL order with both price and trigger price.
- The trigger price must be greater than or equal to the price.
- For example, you can set a trigger price of ₹95 and a price of ₹94.90.
- When the trigger price of ₹95 is reached, the system sends a sell limit order to the exchange.
- Your order gets executed at the next available bid above ₹94.90.
- Your order may execute at ₹95 (or higher) or ₹94.95, but not below ₹94.90.
If the market declines sharply and the stock price falls below ₹94.90 when the trigger of ₹95 is reached, your stoploss order remains open. This could result in higher losses than anticipated.
For sell positions (buy stoploss)
When you hold a sell position, you maintain a buy stoploss to protect against price increases.
Example: You sold a stock at ₹100 and want to set a stoploss at ₹105.
SL-M order type:
- You place a buy SL-M order with a trigger price of ₹105.
- When the price reaches ₹105, the system sends a buy market order to the exchange.
- Your position gets squared off at the prevailing market price.
SL order type:
- You place a buy SL order with both price and trigger price.
- The trigger price must be less than or equal to the price.
- For example, you can set a trigger price of ₹105 and a price of ₹105.10.
- When the trigger price of ₹105 is reached, the system sends a buy limit order to the exchange.
- Your order gets executed at the next available offer below ₹105.10.
- Your order may execute at ₹105.05 or ₹105, but not above ₹105.10.
Alternative uses for stoploss orders
You can also use stoploss orders to enter positions at specific price levels:
- To buy above the Last Traded Price (LTP): Place a buy SL order with your desired purchase price
- To sell below the Last Traded Price (LTP): Place a sell SL order with your desired selling price
Since sell SL orders work below the buy price and buy SL orders work above the sell price, you can utilise these order types for strategic entries.
NSE has discontinued the SL-M order type for options. Instead, you can use Stop-Loss limit (SL) orders, similar to Stop-Loss Market (SL-M) orders.