Most among you might be aware of the stop loss in Zerodha but along with that, there is another term called trailing stop loss Zerodha.
Many consider the two to be the same.
But there is a minor difference that makes these two similar terms different from each other.
Here is the information that helps you in grabbing the in-depth knowledge of both.
Trailing Stop Loss in Zerodha
Before getting deep into the Trailing stop loss in Zerodha, it is important to know the difference between the stop-loss order and normal order.
The major point that differs from the two is the trigger price. On one hand, where normal order you choose either of the limit or market order but in stop-loss order, you select limit or market along with the trigger price.
The trigger price activates the inactive order whenever required.
To set the trailing stop loss in Zerodha the investor needs to look at the prevailing market conditions and bid price. This price defined the maximum price at which the investors will buy the stocks at the point of time.
Now comes to Trailing Price in Zerodha.
In simple terms, it is a special trade order where the stop-loss price instead of setting at a single defined value is set at a percentage or dollar value.
The trailing stop loss prevents you from facing much loss when the price goes down exponentially.
In case the price of the stock in which you made an investment goes up, the increasing price drags the trailing stop loss along with it.
When the price reaches a stable value, there the stop loss becomes constant at the value to which it is dragged.
Thus it helps in preventing your investment form downside by locking the upside value.
Trailing Stop Loss Zerodha Example
Let make the concept a bit simpler by considering one example.
For example, you buy a share of the company for Rs 100 and do not want to lose more than 5% on the amount you invested.
In that case,, the trailing stop is set, the broker gets an automatic intimation to sell the stock when the price fall more than 5%.
However, trailing stop loss prevents you from facing much loss but also keeps you away from taking advantage of the growing price of the market price of the stock.
Trailing Stop Loss Benefits
Trailing Stop Loss proves to be beneficial for investors as it prevents them from facing loss. It removes some sort of risk of trading and provides capital protection.
However, it requires some homework, like you need to consider the trailing stop percentage very carefully. Examine the market condition for that and make a decision that goes right with your investment strategies.
Other than this, frequent trading can impose a certain tax (wash sales) in the case when the stock is held for less than 30 days. Also, excessive trading turns into churning imposing a lot of fees and commission that eats away almost all the profit earned.
The trailing stop loss only moves in one direction and is specifically designed to lock profit or limit losses in trading.
Compared to the fixed stop loss, trailing stop losses is more flexible as it automates the direction of stock price and does not require any manual operations.
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