Most investors have an investing strategy before buying stock and know the percentage of profits that they would like to achieve. After a stock reaches this target price, an investor must decide whether to sell the security or to hold it, especially if additional growth is expected.

A stop-loss is a type of sell order that can be used to protect the profit made on a stock. A stop-loss will trigger a market order as soon as the stock declines to a specified price, known as the stop price. Since the sell order immediately becomes a market order, the stock will be sold at market price, which may be below the stop-loss price that the investor has specified. This can be the case when a stock takes a very quick and sharp decline.

In addition to keeping an investor from losing his profit and limiting the total loss of the investment, there are other advantages. A stop-loss is useful for investors that do not want to closely monitor their portfolio. Also, because it becomes a market order, the transaction will almost always sell immediately. This is beneficial if a stock becomes volatile and an investor needs to quickly sell his shares.

For more information visit the Security and Exchange Commission (SEC) Web site.