What is the difference between stop-loss and take-profit orders?

What is the difference between stop-loss and take-profit orders?

Stop-loss orders are designed to limit losses by selling a security when it reaches a certain price, while take-profit orders lock in profits by selling when a security hits a specified price.

Can you give me an example of how each order works?

Sure! If you buy a stock at $100 and set a stop-loss at $90, it will sell if the price drops to $90. Conversely, if you set a take-profit at $120, it will sell when the price reaches $120.

When should I use a stop-loss versus a take-profit?

Use a stop-loss to protect your investment from significant losses, especially in volatile markets. Use a take-profit to secure gains when you believe the price has peaked.

Are there any risks associated with using these orders?

Yes, stop-loss orders can trigger during temporary price dips, potentially selling your asset too early. Take-profit orders might miss out on further gains if the price continues to rise after hitting your target.