Stop loss (D&O) is a trade execution strategy. If the market price of a security drops to a certain point, traders will usually place a stop loss order at that point in the market. The idea of stopping the price at a particular stop limit (a price below, or above an exchange) is called a position. It is a smart idea to set a stop price of at least $0.06 at the first time of placing the stop order. But it is often hard to see a break below the entry point and the last price, which is around $0.05. So, it is good to set a stop price higher than the market price. As a general rule, it will be better to place stop orders above the entry point. The reason is that when the stock price drops to zero, you can sell the stock and get your profits, while if it rises to a certain price range or above the entry point, you will make your money because your margin goes up. You can also add margin in this step.
Here is an example where if the price of XYZ goes below $0.05, you will try placing a stop loss order at $0.09. By selling your shares at $0.05 at $0.09, you would make $0.09 profit. But if your stop order is lower than the market price, you will lose money and lose time. In case the price goes to $0.05, the profit depends on a range of different stop losses.
What does a stop loss order in a stock look like?
If you place a stop at the entry point, your stop can be set at any price between $0.05 and $0.10. To get a better feeling on the cost to stop a transaction, let’s do the same example but from the perspective of a stock trader.
1. Take a look at the diagram below.
For the first position, we assume the market price is $0.05 for our purposes.
2. Now let’s consider another stock with a lower entry point. Let’s call it A.
3. For the first position, you have to add 5% margin to your stock order. Thus, we want your stop price at the low point to be $0.20
4. Since most people do not like the idea of moving the stop at the low point, we will want to place the stop below. Therefore, you