A guide to stop loss orders

What is a stop loss order?

A stop-loss order is designed to limit the losses you suffer if a share you've bought drops in value. It does this by automatically attempting to sell your shares if their value falls to a level you specify, known as the trigger price. The idea is that by selling when the price falls to or below the trigger price you’ve set, you’re out of the market and won’t be affected if the price falls any lower.

For example, let’s say you buy a share at £1 and decide you don’t want to keep it if it falls by 20% or more. You can do this by setting up a stop loss order with a trigger price of 80p.

How do you set one up?

You can set up a stop loss order for any UK-listed share by logging in to your AJ Bell Youinvest account on our website or mobile app.

You first need to set the trigger price. If the share price drops to or below this level, the stop-loss order will trigger an automatic attempt to sell at the best available price.

You’ll also need to set a bottom price. This is the lowest price you’re prepared to sell at, and must be lower than your trigger price.

You can also choose whether you want your stop-loss order to sell all, or just some, of the total shares you own in that company.

A stop-loss order can be in place for up to 90 days, and you can cancel or amend it online or via the app at any point during that time, by visiting the ‘Active orders’ area.

How the stop loss order is executed

A stop-loss order kicks in when the share price drops to or below the trigger price you’ve set. Our systems will then automatically try to place an order to sell the shares at the current market price. This means your sale price won’t necessarily match your trigger price. If the share price is fluctuating a lot, your sale price could be much lower.

This is why your bottom price is important – it ensures you won’t sell below a level you’re happy with. If you enter a trigger price of 80p, and a bottom price of 60p, we won’t attempt to sell your shares if they dropped below your 60p bottom price.

When a stop loss order has been successfully executed, a contract note will be issued to confirm the details of the deal.

Things to watch out for

Whether to set up a stop-loss order, and what your trigger price should be, depends on your investment strategy and appetite for loss. If you’re investing for the long term, a stop-loss order may not be as important because in theory you should be able to ride out any market volatility.

Placing a stop-loss order on a share which falls and then rebounds very quickly means you run the risk of selling the shares in the short-term blip – and missing out when the share price goes upwards again.

Lastly, keep in mind that a stop loss order may be delayed or fail to execute, due to circumstances beyond our control and especially when the market is volatile. If this happens, AJ Bell Youinvest can’t accept any liability for any loss or potential loss on your portfolio.

You can learn more about stop-loss orders by reading the FAQs on our website.