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Updated 2mo ago.
Updated 2mo ago.
A stop-loss order is an instruction given to your broker to automatically sell a security when its price drops to a predetermined level. It is used to limit potential losses on an investment. Once the trigger price is reached, the stop-loss converts into a market order and executes at the next available price.
You buy shares of Shopify (SHOP.TO) at $100 and place a stop-loss order at $85. If the stock drops to $85, your broker automatically sells your shares, limiting your loss to about 15%. Without a stop-loss, if the stock drops to $60, you would have lost 40%.
Stop-loss orders are useful for investors holding individual stocks. For diversified ETFs like XEQT.TO or VGRO.TO, a stop-loss is generally counterproductive because it could cause you to sell during a temporary dip, missing the recovery. The best protection remains diversification and a long-term investment horizon.