Q: What are stop-loss orders and how do they work?
A: Placing stop-loss orders when you buy a stock can indeed be helpful.
They direct your brokerage to sell the shares immediately if they fall below a price you specify, such as 10 percent below your purchase price. That way, you can avoid losing more than 10 percent.
Be careful, though, because many people end up ejected out of good stocks that temporarily swoon and soon recover. And frequent buying and selling generates trading costs.
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Some brokerages allow you to set trailing stop-loss orders that reset at a certain percent below the current price whenever the current price changes.