An order to sell an asset automatically when it reaches a certain price to limit losses.
A Stop-Loss Order is an automated instruction to sell an asset when its price falls to a specified level. Traders use stop-losses to limit downside risk and protect their portfolios during market volatility.
How Stop-Loss Orders Work
Trader defines a stop price
When the market hits that price, the order activates
It becomes a market order or limit order, depending on settings
The asset sells automatically to prevent further loss
Stop-loss orders help enforce discipline and reduce emotional trading.
Types of Stop-Loss Orders
Stop-Market Order: Triggers a market sell at the stop price
Stop-Limit Order: Triggers a limit sell at a specified price range
Trailing Stop: Moves dynamically as price increases, locking in profits
Benefits
Protects capital
Reduces manual monitoring
Helps manage leveraged positions
Prevents catastrophic losses during sudden crashes
Summary
A stop-loss order automatically sells an asset once it reaches a predetermined price, helping traders limit losses and manage risk.
