A Stop Loss is an order placed on a trade to help limit potential losses. It automatically closes your position when the market reaches a specified price level.
When you set a Stop Loss, you are instructing the system to close your trade if the price moves against you to your chosen level.
How it works
A Stop Loss is not executed immediately
When the stop price is reached, the Stop Loss triggers a market order
The trade is then closed at the best available market price
Example
You buy a stock at $100.
You set a Stop Loss at $80.
If the market price falls to $80, your Stop Loss is triggered, and the position is closed automatically to limit further losses.
Important to know
Stop Loss orders do not guarantee execution at the exact price
In fast markets or during gaps, the trade may close at a slightly different price
Stop Losses help manage risk but cannot eliminate losses entirely
Why use a Stop Loss?
Helps control risk
Protects your account when you are not actively monitoring trades
Encourages disciplined trading
Summary
A Stop Loss automatically closes a trade when the market reaches a set price, helping traders manage risk and limit losses.