Stop-Loss Order

Category: finance

An order placed with a broker to buy or sell a stock once it reaches a certain price to limit losses.

A stop-loss is the essential "eject button." If you own a stock at $100, you might set a stop-loss at $90. If the stock hits $90, the order automatically converts to a market sell order. It removes the emotional component from trading by automating the decision to cut a losing trade.

Common Examples

• We set a stop-loss order at 5% below our entry point to ensure we never allow a minor trade-error to turn into a portfolio-killing disaster.
• During high-volatility news events, stop-loss orders can be "gapped" over, meaning the order executes at a price significantly worse than your target.