Glossary
Stop-loss order
A standing order to sell (or buy back a short) once the price reaches a set level, used to cap the loss on a position without watching the screen.
On this page
A stop-loss order is an instruction to exit a position automatically if the price moves against you to a level you chose in advance. For a long position it is a sell order placed below the current price; for a short position it is a buy order above it. It turns a risk decision you made calmly into an action that happens even if you are away, distracted or tempted to hope for a rebound.
How it works
A standard stop order rests unseen in the market until a trade prints at or through the stop price. At that moment it becomes a market order and fills at the best available price. Because of that, the fill can be worse than the stop, sometimes much worse.
Placing it well
Where the stop goes matters more than whether you use one. A stop set too tight sits inside the stock's normal day-to-day noise and gets hit by routine swings, a pattern traders call being "stopped out" just before the move they expected. Many traders anchor stops to structure, such as just beyond a support level, or to volatility, such as a multiple of the average true range, and then size the position so the distance to the stop equals the dollars they are willing to lose.
A stop is not a guarantee. Gaps skip right past it, and a stop-limit version can avoid a bad fill only by risking no fill at all.