CAN YOU GIVE ME AN EXAMPLE OF THE BENEFITS OF USING A STOP LOSS? - ProProfs Discuss
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Can you give me an example of the benefits of using a stop loss?



Asked by Elizabeth, Last updated: Oct 15, 2021

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

Example: you bought the stock at $15. today it trades at $30 but you are going onvacation for three months and would like to try and hang on to as much of that gainwithout sacrificing further growth. so you set a stop loss at $27.two scenarios to consider:1. you are enjoying your vacation and the stock price starts to slide. when the pricefalls back to $27, the stop loss order is triggered and your shares are soldautomatically. when you get back from your vacation, you see the stock has fallen allthe way back to $18 per share. luckily, your profit on the stock was approximately $27- $15 = $12 per share.2. you are enjoying your vacation and the stock price starts to slide. the price fallsback to $28 but then continues to climb higher over the next few months. when youget home, the stock is trading at $40. you still own the shares because the stop lossorder you placed was never triggered. your current paper profit is $40 - $15 = $25 pershare.the stop loss order is an order designed to help protect you from further losses but, asa result of its function, also can help you lock in profits on a transaction. in theexample above, the investor had a stock worth $30 at the time the vacation started.the investor was willing to suffer a loss of $3 per share on the price down to $27, butwasnt willing to go any lower than that, so a stop loss order was placed on theposition.
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