BSE to Discontinue Stop Loss Market Orders for All Segments from October 9

Bombay Stock Exchange (BSE) has announced the discontinuation of Stop Loss Market (SL-M) orders, effective from October 9. This decision follows a recent incident involving a "freak trade" triggered by an SL-M order, which led to concerns within the trading community. The aim is to prevent erroneous order placements, whether they result from manual or algorithmic trading.

BSE's decision to discontinue SL-M orders in multiple market segments, including equity, equity derivatives, currency derivatives, and commodity derivatives, is intended to safeguard traders from these issues. This change is in alignment with the National Stock Exchange (NSE), which implemented a similar move in September 2021. Instead of SL-M orders, traders are encouraged to use Stop Loss Limit (SL-L) orders, which offer greater control and precision.

The Problem with SL-M Orders

The core issue with Stop Loss Market (SL-M) orders is their automatic execution at the market price once the trigger price is reached. This can sometimes lead to "freak trades" and disrupt the market. Such trades often occur due to sharp price movements or low trading volumes at the trigger price, resulting in unexpected outcomes.

Market experts widely welcome this decision, emphasizing its potential benefits, especially for small and retail traders. By preventing "freak trades" and the associated market disruptions, the discontinuation of SL-M orders is expected to enhance overall market stability. This decision reflects a commitment to ensuring a fair and efficient trading environment.

Understanding Stop Loss Orders

A Stop Loss order is a critical tool used by investors and traders to manage risk in the stock market. It functions as an order that only becomes active when the market reaches a specific price level. Investors primarily use Stop Loss orders to exit their positions and limit potential losses. These orders can be either buy or sell orders, depending on the trader's market position.