stoploss

A stoploss is an order placed with a broker to buy or sell a security when it reaches a predefined price. Its primary purpose is to limit potential losses on a position or to lock in gains by capping downside exposure.

Common forms include hard stops, which use a fixed stop price; trailing stops, which adjust the stop price as the market moves in the trader’s favor; and stop-limit orders, which convert to a limit order at the stop price, potentially limiting execution risk. Stop orders can apply to long or short positions and are used across asset classes such as stocks, futures, and currencies.

In execution terms, when the stop price is reached, the order is activated. A stop loss may become a market order, filling at the next available price, which can differ from the stop price in fast or illiquid markets. A stop-limit order, by contrast, sets a limit price for execution, which may result in the order not filling if the market moves away.

Trailing stops help protect profits by moving the stop price with advances in price, while still allowing for upside gains. However, stop orders can be affected by market gaps, slippage, or whipsaws, and may trigger without reflecting a sustained price move. Traders use stoplosses as part of risk management, balancing the need to limit losses with the potential for continued gains.