InvestorQ : Do stop losses help me in keeping my liquidity intact?
Mitali Bhutta made post

Do stop losses help me in keeping my liquidity intact?

Answer
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Anjana Aiyar answered.
2 years ago


It may not be a case of keep your liquidity intact but more a case of ensuring that all your funds are not locked up in losing positions. Stop loss is an insurance which ensures that you only lose a certain amount that you can afford to lose, not more than that. For a trader in the financial markets, liquidity plays an important role. This allows the trader to capitalize on opportunities as and when they arise. The beauty of the stop loss is that it ensures that you are liquid when it matters the most. If you bought a stock and the stock corrected sharply, then without a stop loss you will be left holding paper when the markets are down. In the process you will miss out on other buying opportunities.