What is a stop-loss order?
A stop-loss automatically sells your stock if it falls to a set price — a pre-decided exit that caps how much you can lose on a trade.
A stop-loss is an instruction you place with your broker to automatically sell a stock once it drops to a price you choose. It is a safety net: you decide, in advance and calmly, the most you are willing to lose on a position, instead of freezing or hoping when the price is falling.
Its real value is psychological as much as financial. Markets trigger fear and denial; a stop-loss takes the in-the-moment emotion out of the exit decision. Disciplined traders define their risk before they enter — "I’ll exit if it falls 8%" — and let the order enforce it.
It is not magic. In fast-falling or gap-down markets the actual sell price can be worse than your stop level (slippage), and setting stops too tight gets you knocked out by normal volatility. Used sensibly — sized to the stock’s typical movement — a stop-loss is core risk management, especially in leveraged or short-term trades.
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Common questions
Where should I set my stop-loss?
There’s no single rule, but it should reflect the stock’s normal volatility and how much of your capital you’re willing to risk on the trade — not an arbitrary round number. Too tight and noise stops you out; too loose and it stops protecting you.
Does a stop-loss guarantee my exit price?
No. It triggers a sell when the price hits your level, but in fast or gapping markets the actual execution can be lower (slippage). It limits risk, it doesn’t eliminate it.