Floating Loss: How a Percentage Stop-Loss Works and How Wide to Set It
How far a holding is below its average cost, in percent: a paper loss until it is sold. Commonly used as a stop-loss condition; a 20% loss needs a 25% gain to recover.
Contents (5 sections)
A floating loss, also called an unrealised or paper loss, is how far a holding is below what you paid for it while you still own it. It becomes a real loss only when you sell. A percentage stop-loss is a rule that says: when the floating loss reaches this size, sell.
How it is measured
Floating loss is the average cost of the holding minus the current price, as a percentage of the average cost. Bought at 100 on average and now at 92, the floating loss is 8 percent.
Two details matter:
- It is measured against the average cost of everything you hold in the stock, not against any single purchase. Adding shares at a lower price lowers the average and shrinks the floating loss, without the stock having recovered at all.
- The loss you need to get back is larger than the loss you took. Down 20 percent needs a 25 percent rise to break even; down 50 percent needs 100.
| Loss | Gain needed to get back |
|---|---|
| 5% | 5.3% |
| 10% | 11.1% |
| 20% | 25% |
| 33% | 50% |
| 50% | 100% |
That table is the whole case for a stop: small losses are cheap to recover from and large ones are not.
How wide to set a stop
Too tight, and ordinary movement sells you out of stocks that go on to rise. Too wide, and the stop no longer limits anything. Two things set the right distance:
- The stock's own volatility. A stop inside one or two days' normal movement will be hit by noise. ATR measures that movement.
- Your position size. The stop distance and the size together decide what a losing trade costs. A wider stop needs a smaller position for the same money at risk.
What it does not tell you
- That you will get the price. A stop is checked against prices as they come. A stock that gaps down on news opens below the stop, and the loss is larger than the percentage written in the rule.
- Whether the idea was wrong. A stop limits cost. It says nothing about whether the stock recovers afterwards.
In Stock Compass
The rule indicator is floating_loss_pct: a positive number, the percentage the holding is below its average cost. It has a value only for stocks you hold and only while they are at a loss; floating_gain_pct is its counterpart when they are in profit.
A stop-loss is written as an exit condition: floating_loss_pct greater than 8 sells when the holding is 8 percent under cost. The same number does a second job: the app's suggested position size uses the smallest floating-loss threshold in your exit rules as the stop distance. Stops set on an individual position, as a price, are separate and are checked as price alerts. Take-profit and stop-loss rules and A stop-loss you can execute go through the choices.
FAQ
What percentage should a stop-loss be?
There is no single figure. Stops between 5 and 10 percent are common for individual stocks, wider for volatile ones. The distance should be larger than the stock's ordinary daily movement and should be chosen together with the position size, so that a stopped trade costs an amount you decided in advance.
Does averaging down reduce my floating loss?
It reduces the percentage, because the average cost falls. The money lost so far is unchanged and the position is now larger. A stop written as a floating loss moves further away from the price each time you add lower.
Why did I lose more than my stop-loss percentage?
Because the price jumped past it. A stock can open well below the previous close after bad news, and the first price available is below the stop level. Earnings dates are the most common occasion.
Definition only — not investment advice.