Q&A with Gordon Pape: Stop-Loss Orders
Stop-loss orders: Are they a good idea and, if so, how should they be used?
Q: What is your perspective on using stop-loss settings in your portfolio? If you were using them what do you use to set the level? — Gord Z.
A: Stop loss settings can be useful in protecting gains however they may not be effective in a big market sell-off. Remember, there has to be a buyer for a stop-loss to work. If everyone is selling, the shares may be sold for much less than you hoped to receive.
The level you set depends on many factors. For example, if you are trying to protect a big gain, it may be as low as 5 per cent below the current share price. If you simply want to protect a portfolio from a big loss, it might be 15 per cent below current value. That should provide enough cushion to ensure the shares aren’t dumped during a brief market dip. — G.P.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.
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