The pros and cons of stop-losses

Joshua Raymond, chief market strategist, City Index

"There are two different types of stop losses; standard and guaranteed. With standard, it won’t protect you if the market gaps – so for example if the market closed at 390 and you had a stop-loss that kicked in at 389, if the market opened at 380, the stop-loss would only kick in at 380."

"With a guaranteed stop-loss, it guarantees to sell your stake at the price your stop-loss was set at. There is a small surcharge of between one to three times the total stake for this type of stop-loss."

"The positives are that they are a strong tool to help manage risk. Whether stop-losses are for you depends on whether you are a long-term or a short-term investor. They’re suitable for the average investor who can’t look at stock markets 24 hours a day. If you are risking a lot on a short-term trade, they are more likely to be for you, but if you are investing for a long time, you should be more able to absorb any losses."

"The negatives are that if the market is volatile, it could drop at one point in the day, trigger the stop-loss when it is close to the bottom, then rebound up to and beyond the original level."


Harry Katz, principal at Norwest Consultants

"There’s a lot of volatility in the markets at the moment, and some of this is down to automated stop losses. You can’t blame someone for wanting to be the first into the life boat. From an individual point of view, why should you hang onto a stock that is plunging just because this will help other people?"

"When trading or investing you know that when a stock drops below a certain point, it is never going to return to that level. The banking crisis of 2008 is a gold-plated example of where they would have paid off: if you’d have been stupid enough to buy bank stocks, you would have saved yourself a fortune."


Andy Parsons, advice team manager, The Share Centre

"From a personal and professional point of view, I think they are a wonderful idea. They give the opportunity to help protect the downside. They are like a safety net and are a necessity for the inexperienced investor. If you may need to sell your stock within a couple of days and don’t have time to recoup your losses, they are essential."

"Markets are all well and good when they are going up, but a lot depends on how much pain you can take on the downside."


Adrian Lowcock, senior investment adviser at Bestinvest

"They are very popular and can do quite well for people who trade often and take quite an active approach to their investment.

"They can be useful for discretionary managers, for example."

"For a different client, for someone who doesn’t have time to look at their portfolio every day, they can be quite dangerous."