Trading glossary
Understand what a stop-loss order is, how it triggers to limit downside on a position, and the difference between stop-market and stop-limit variations.
A stop-loss order is an instruction to close a position once the asset reaches a specified price, known as the stop price. Its purpose is to cap how much a trade can lose by exiting automatically instead of relying on manual reaction. Traders set the stop level in advance, defining the point at which they accept the trade has not worked out.
There are two common variants. A stop-market order becomes a market order when the stop price is hit, prioritizing execution over an exact price. A stop-limit order becomes a limit order at a set price, prioritizing price over guaranteed execution. Each involves a trade-off: stop-market may fill at a worse price in fast markets, while stop-limit may not fill at all.
Stop losses help enforce discipline, but they are not foolproof. In fast-moving or thinly traded markets, prices can gap past the stop, and the actual exit may differ from the intended level. A stop loss is a risk-control tool, not a guarantee. This overview is educational and not financial advice; trading carries risk, including loss of capital.
A stop-market order triggers a market order to prioritize getting filled. A stop-limit order triggers a limit order at a chosen price, prioritizing price but risking that the order does not execute.
No. In fast or illiquid markets, the price can gap past your stop, so the actual fill may be worse than the level you set. Stops limit risk but do not guarantee it.
There is no universal level. Placement depends on your strategy, the asset's volatility, and how much you are willing to risk. This is a personal decision, not a fixed rule.