A Stop Loss order is a risk management tool used to automatically close a trade when the price reaches a pre-set level, with the aim of limiting potential losses.

How does a Stop Loss order work?

When opening a trade, you can set a specific price level for the Stop Loss. If the market moves against the direction of the trade and reaches that price, the trade is automatically closed at the best available price.

Example:

If you buy a stock at $100 and set a Stop Loss order at $95, the trade will be automatically closed if the price drops to $95, helping limit your loss.

Why is Stop Loss used?

• To limit potential losses.
• To manage risk effectively.
• To avoid the need to monitor the market continuously.

Important Notes:

• A Stop Loss order does not guarantee that the trade will be executed at the exact specified price in all cases, especially in fast-moving markets or when price gaps occur. This is known as slippage.
• A Stop Loss order can be modified or cancelled at any time before it is executed.
• Using Stop Loss does not prevent losses completely, but it helps control them.