GlossaryBeginner
Stop-Loss Order
An order that automatically closes a position once a specified loss-limiting price is reached.
A stop-loss order automatically triggers a sale once an asset's price falls to (or, for a short position, rises to) a level specified in advance, intended to limit further loss on a position.
Deciding this level in advance, rather than in the moment, is a common risk-management practice intended to reduce emotionally-driven decision-making during a fast market move.
Examples
- A trader might set a stop-loss order 10% below their entry price to cap potential loss on a position.
- A stop-loss set too tight relative to normal volatility may trigger on ordinary price noise.