Stop-Loss Order

A stop-loss order is an instruction you give your broker in advance to sell (or buy, if you're short) a position automatically once the price hits a level you choose, so you don't have to watch the screen every second to limit how much you lose.

Here's how it works mechanically: you set a "stop price" below your entry (for a long position). The order sits quietly, doing nothing, until the market trades at or through that stop price. At that moment it "triggers" and turns into a market order — an order to execute immediately at whatever price is available, not necessarily the exact stop price you picked.

That last point is the nuance that trips people up. A stop-loss does not guarantee you get out at your stop price. In a fast-moving or thin market, the price can gap or slide past your stop before your order fills, so your actual exit — called the fill price — can be noticeably worse than the stop price, especially around news, earnings, or overnight gaps. This is different from a stop-limit order, which turns into a limit order (executes only at your price or better) instead of a market order — safer on price, but it can simply fail to fill at all if the market keeps moving away from you.

A stop-loss is also different from a mental stop (just a price level in your head that you act on manually) — the broker enforces it for you, which removes hesitation but also removes judgment in the moment.