Stop Loss
An order to automatically close a position at a specified price to limit potential losses.
A stop-loss is an order that closes a position at a set price to cap losses. It is the most important tool in retail trading, and EU and UK rules require brokers to provide it.
A stop loss is an order placed to automatically close a position when price reaches a specified level, limiting potential losses. It's a core risk management tool that protects traders from excessive losses. A stop is a decision made in advance: the maximum you will lose on a trade, set before emotions can edit it. A guaranteed stop, required on some platforms, protects against gaps and slippage, so check whether your broker offers one before you rely on it.
How It Works
- Set below entry for long positions
- Set above entry for short positions
- Triggered when price touches the level
- Market order executed at next available price
Types of Stop Loss
Fixed Stop Loss
Set at a specific price level
Trailing Stop
Moves with price to lock in profits
Guaranteed Stop
Executes exactly at set price (may have fee)
Trading Tips
Never trade without a stop loss
Place beyond key support/resistance levels
Slippage can occur in volatile markets
Stop Loss Example
Say EUR/USD drops 100 pips in minutes on surprise news. With a stop 30 pips away you lose the planned $30 per mini lot and watch from safety. Without one, you donate the full flush and spend the night hoping.
How Traders Use Stop Loss
Set every stop before entry, at invalidation, and leave it alone. A stop you move is a suggestion. Review stopped trades weekly: clusters of stop-outs mean your entries or levels need work, not your luck.
Related Terms
Sources
- InvestopediaStop-loss orders
- ESMARetail investor protection rules
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