Stop-Loss Order

A stop-loss order is a conditional instruction that stays dormant until the market reaches a trigger price, at which point it sends a market or limit order to close a position. Traders use it as a risk-management tool to cap how much a losing trade can cost, rather than watching charts continuously. A stop-market version guarantees execution but not price, so it can fill well below the trigger during a sharp move; a stop-limit version protects the price but may not fill at all. Neither eliminates risk: gaps, exchange outages and sudden volatility can produce far worse fills than expected, especially on leveraged positions.