Definition
Stop Loss Order (F&O)
A stop loss order automatically exits an F&O position when the price hits a preset level, capping the loss.
A stop loss can be a market or limit order triggered at a chosen price; in F&O it is essential because leverage magnifies losses fast. An SL-M (stop loss market) order fires at the prevailing price once triggered, while an SL-L (stop loss limit) only fills within a set limit, risking a missed exit in a fast move.
Indian F&O traders on Nifty, Bank Nifty, and stocks rely on stop losses given the speed of intraday and expiry-day moves, often sizing them in multiples of ATR. Note that for some volatile contracts brokers and exchanges restrict SL-M orders, so traders must use SL-L carefully to avoid slippage.
Related terms
- Mark to MarketMark to market (MTM) is the daily settlement of profit or loss on a futures position based on that day's closing price.
- Average True Range (ATR)ATR measures average volatility by tracking the typical range a security moves over a period, including gaps.
- Stop LossA stop loss is a pre-set order that triggers an automatic sell (or buy, for shorts) once a security hits a chosen price, capping your loss without you having to watch the screen.
- LeverageLeverage is using borrowed money or margin to control a position larger than your own capital alone would allow.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.