SL and SL-M is understood when one sells a stock. What confuses me is what is the significance of SL and SL-M when you buy ?.
Further please explain the difference between SL and SL-M.
sl means sl with limit order, if you are to enter with limit order.
sl-m means sl with market order, if you are to enter with market order
Not only should you understand the difference between the two but also know when to use them.
- “SL” Order
It has two components: “Price” & “Trigger Price”. In the below example, I have a long position in RCOM and this SL order will protect my downside if the price falls. Now, this SL order will be ACTIVATED when the price goes down to 20 but will be executed only when the price falls to 19. The benefit of SL order is that you know exactly at what price you will be out and how much loss you will take.
- “SL Market” Order:
The SL Market order has only one component: "Trigger Price. In the above example, the Stop Loss- Market will be triggered as soon as RCOM goes down to 20 HOWEVER, you have no control over the actual execution price. If you are lucky, it would be 20 but if the stock is falling like a stone, it could be any price (even 19 or 18).
Here are some thumb rules for picking which one is right:
- For low liquidity stocks, SL order can be dangerous because if there no sellers (in case of longs) at that specified Price, your SL order will be sitting there while the stock tumbles against you. You can seriously get hurt. Therefore, in low liquidity situations, always go with “SL-Market” order.
- If the stock or Future you’re trading is liquid enough, go with “SL” order
- If you choose “SL” order, make sure your price is a nice round number. Picking a weird price (like 98.3) would be good for your calculation but it run of risk of getting skipped.
Hope this helps…
~Neha (VRD Nation)
Thanks for your views friends…