How does a stop loss work?

bowlhead99

w00519773 said:

What happens if the stop loss (£5.50) is reached but the broker is unable to trade at that price - perhaps because of timings i.e. within a fraction of a second the price goes back to something less than £5.50.  Are you still "in the game" until the stop loss is triggered again or does the broker do its best to trade once the stop loss is triggered for the first time?

A limit order means the stock will not be sold for less than the limit you set.

A stop loss order means that only once the price is observed to fall below a particular price, the broker must act to sell those shares because you no longer want them (because you fear a greater loss, and want to stop the risk of that happening). 

If you place a stop loss order at £5.50 and the price falls to £5.50 and the broker can't execute it immediately for the volume you want (or if the price one morning simply opens well below £5.50 so that there was no opportunity to sell at £5.50 even if you were first in the queue) then the broker will just try to sell the share for whatever they can. So you might have a stop loss set at £5.50 but the shares are sold at £5 or less, and then later in the day the share price has gone back up to more than £6, without you being an owner of the shares any more because you had told the broker to sell them if the price went below £5.50.

By contrast if you had placed a limit order to sell you shares with a limit of no less than £5.50 and the price goes up to just over £5.50 but the broker can't sell them at that point due to lack of buying volume, and then the shares fall back down below £5.50, the shares will not be sold because you have told him you don't want to sell for less than £5.50 so he won't sell them for less than that limit that you set.

Thrugelmir

w00519773 said:

What happens if the stop loss (£5.50) is reached but the broker is unable to trade at that price - perhaps because of timings i.e. within a fraction of a second the price goes back to something less than £5.50.  Are you still "in the game" until the stop loss is triggered again or does the broker do its best to trade once the stop loss is triggered for the first time?

The trade will remain open for the market to see until the time/date you specify.