Dictionary / Trading and orders
What Is a Stop-Loss Order?
A stop-loss order tells your broker to sell a stock automatically if its price falls to a level you choose. It is meant to cap how much you can lose.
How it works
You buy at $100 and set a stop-loss at $90. If the price drops to $90, your stop turns into a market order and sells at the next available price.
Stop-loss vs stop-limit
A stop-loss sells at whatever price is available once triggered, which can be below your stop in a fast fall. A stop-limit only sells at your limit price or better. It protects the price, but might not sell at all if the stock falls straight past it.
The downsides
- Normal ups and downs can trigger it, and then the price recovers without you.
- If a stock opens far lower after bad news, you may sell well below your stop.
- It does not fit long-term buy-and-hold investing well.
Related terms
Market vs limit orderBuy now at any price, or only at your price.
VolatilityHow much and how fast a price moves.
Day tradingBuying and selling within the same day.
Risk toleranceHow much ups and downs you can handle.
Bid-ask spreadThe gap between buying and selling prices.
Margin tradingBuying stocks with borrowed money.