Stop-loss can be defined as an advance order to sell an asset when it reaches a particular price point. Stop loss can also be used to trade when you sell and then buy back. It is used to limit loss in a trade. The concept can be used for short-term as well as long-term trading. This is an automatic order that an investor places with the broker/agent by paying a certain amount of brokerage called a cover order or bracket order. Stop-loss is also known as ‘stop order’ or ‘stop-market order’. By placing a stop-loss order, the investor instructs the broker/agent to sell a security when it reaches a pre-set price limit. But there is no guarantee that the stop-loss will be triggered at that price only.
In case of a stop-loss order, the trading company or broker looks at the trading discipline to help the investor cut losses by the current market bid price. If investor Y wants to place a bid for shares of ABC company at a certain price point, you need to instruct to set the limit against the stock purchase. When the stock reaches the set bid price, an order will be executed automatically to purchase the same. If you already own the shares of company X and want to sell them, you would ask your broker to sell them when the price reaches certain high or low. Accordingly, an automatic order will get triggered once the price range matches the set limits.