Glossary · Markets & Trading Mechanics
Stop-loss order
An order that closes a position when price reaches a set level.
A stop-loss is an order designed to exit if price moves against you to a planned level. Once the stop price is hit, the order typically becomes a market (or sometimes limit) order to close the position.
Stops help turn a risk plan into an executable rule: you decide in advance how much room a trade gets. They are not perfect — gaps can fill beyond your stop — but they are a core risk-management habit for active traders. Trailing stops raise the exit level as price moves in your favor.
Example
You buy at $40 and set a stop-loss at $37. If the price falls to $37, the stop triggers and aims to sell so a larger drop does not keep compounding.
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