stop-loss
A pre-set exit price that closes a trade at a limited loss, placed where the trade idea is wrong.
A stop-loss is a price set in advance to close a trade if the market moves against the plan. It helps define where the original trade idea no longer holds and estimates the loss for position sizing.
A stop order does not guarantee an exact exit price. In a fast or thin market, the fill may be worse than the stop price, and gaps can skip past it. Spread and fees also affect the final result.
A stop-loss limits a plan's intended risk; it cannot make a trade risk-free.
Example
Marc's practice account is $10,000. He studies a made-up Bluefin Energy share at $50 and sets a stop-loss at $48, a distance of $2 per share. If he holds 20 shares and the stop fills at $48, the price loss is 20 × ($50 − $48) = $40 before costs.
The calculation estimates the planned loss. A fast move could lead to a fill below $48, so the actual loss could be larger.
Common mistakes
- Assuming a stop always fills at its trigger price.
- Placing a stop without considering ordinary price movement.
- Moving a stop farther away just to avoid recording a loss.
- Most people who trade lose money.
Learn it in the course
- Order types: market, limit, stop · Choose how you enter and leave: right now at any price, only at your price, or when a level breaks. See what each order does in a fast drop, with real fill prices.
- Risk per trade: a small share of the account · Fix how much of the account one trade may cost if it goes wrong, and see why a small share, such as 1%, keeps you alive through a long losing run.