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 crucial 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
Related Terms
Sources
- InvestopediaStop-loss orders
- ESMARetail investor protection rules
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