Stop-loss
A stop-loss is an order that closes your position when price reaches the level where your trade idea is invalidated. It limits the loss in advance.
How it works
You place the stop together with your entry. If price moves against you and touches the stop level, the position closes automatically, even if you are asleep or away. That way one bad trade cannot eat your whole account.
Place the stop beyond the level that breaks your scenario: below support for a long, above resistance for a short. Base it on the chart, not on an amount that feels comfortable. Then size the position to the stop distance so the loss is, for example, 1% of your account.
A regular stop becomes a market order when triggered, so in a fast market or on a gap it can fill worse than its set price. A stop-limit order avoids that slippage, but it may not fill at all if price jumps past the limit.
Account $1,000, risk 1% = $10. You buy BTC at $60,000 and put the stop below support at $59,400, which is $600 per coin. Position size: $10 / $600 ≈ 0.0167 BTC, about $1,000 worth. If the stop hits, you lose about $10.
You short EUR/USD at 1.0850, resistance is at 1.0880, the stop at 1.0890. That is 40 pips. At 0.1 lot one pip is worth about $1, so the trade risks about $40.
The most common mistake is moving the stop further away as price gets close "to give the trade a chance". A small planned loss then turns into a big one. Decide where the idea fails before you enter, size the position to the stop rather than the stop to the size you want, and never move it in the losing direction.
Questions and answers
What is a stop-loss in simple terms?
It is an automatic exit from a trade if price moves against you to a level you chose in advance. It keeps the loss small and known before you enter.
Where should I put my stop-loss?
Beyond the level whose break kills your idea: below support for a buy, above resistance for a sell, with a small buffer. Then size your position so the loss at the stop is acceptable.
Why did my stop-loss fill at a worse price?
A regular stop becomes a market order, and in a sharp move or a gap it fills at the next available price. That is slippage, and it is more common around news and in thin markets.
Related terms
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Updated: 2026-10-19