Definition
A Stop-Loss Order is an automated instruction that closes a position when price reaches a predefined loss threshold. It is commonly used to help limit downside exposure.
Stop-loss levels are set by the trader based on risk tolerance and strategy parameters.
Example in Context
A trader buys Bitcoin at $30,000 and sets a stop-loss at $28,500. If the market falls to that level, the position is automatically closed.
FAQs
Does a stop-loss guarantee a fixed loss?
No. In volatile markets, execution may occur at a different price due to slippage.
Can stop-loss orders be adjusted?
Yes. Traders can modify stop-loss levels as market conditions change.
Are stop-loss orders required?
They are not required but are widely used as part of risk management practices.
Related Terms
- Take-Profit Order
- Trailing Stop-Loss
- Risk Management
- Position Sizing
- Liquidation