Definition

Noun: A stop-loss order is an instruction given to a broker or trading platform to automatically sell (or buy) a security once it reaches a specified price. Its primary purpose is to limit an investor's loss on a position or to protect a profit.

Usage

A stop-loss order is placed to manage risk. For a long position (owning a stock), a stop-loss order to sell is set below the current market price. For a short position (betting a stock will fall), a stop-loss order to buy is set above the current market price. The order becomes a market order to execute the trade once the "stop" price is triggered.

Examples

• The investor placed a stop-loss order at $45 to limit potential losses if the stock, bought at $50, started to decline.
• After the stock rallied, she moved her stop-loss order higher to lock in some of her profits.
• A common trading strategy involves using a stop-loss order on every position to enforce disciplined risk management.

Advanced Usage

• Trailing Stop-Loss Order: A dynamic version where the stop price is set at a fixed percentage or dollar amount below (for a long position) the market's highest price since the order was placed. It "trails" the price up as it rises, locking in profits, but does not move down if the price falls.
• Stop-Limit Order: A variation where, once the stop price is reached, the order becomes a to sell (or buy) at a specified limit price or better, rather than a market order. This provides more price control but does not guarantee execution.

Variants and Related Words

• Stop Order: A more general term; a stop-loss order is a specific type of stop order designed to limit loss.
• Stop-Out: The point at which a stop-loss order is executed, closing the position.

Synonyms

• Protective stop
• Stop order (in the context of limiting loss)

Related Phrases

• To place a stop-loss: The action of setting a stop-loss order.
  • It's wise to place a stop-loss when entering a volatile market.
• To get stopped out: To have one's position automatically closed because the stop-loss price was hit.
  • The sudden market dip caused many traders to get stopped out of their positions.

Noun

1. an order to a broker to sell (buy) when the price of a security falls (rises) to a designated level