Stop Loss
An order to automatically close a position at a specified price to limit losses.
Full Definition
A stop loss is a risk management order that automatically closes your position when the price reaches a predetermined level, limiting potential losses. It's one of the most important tools for protecting your trading capital. Stop losses can be set at a fixed price, a percentage of your account, or based on technical levels like support/resistance.
Example
You buy EUR/USD at 1.1000 and set a stop loss at 1.0950 (50 pips below entry). If price drops to 1.0950, your position automatically closes, limiting your loss to 50 pips regardless of how far price continues to fall.
Related Terms
Take Profit
An order to automatically close a position at a target price to secure gains.
Trailing Stop
A stop loss that moves with price to lock in profits.
Risk/Reward Ratio
The potential profit compared to potential loss on a trade.
Position Sizing
Determining how much capital to risk on a single trade.
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