Stop Loss

A stop loss is a risk management tool that automatically closes a position when the price moves against you by a predetermined amount. It's essential for protecting capital and managing risk. Stop losses can be set as a fixed price, a percentage from entry, or based on technical levels like support. While stop losses protect against large losses, they can also result in premature exits during temporary price fluctuations. Traders must balance protection with giving trades room to develop. Advanced variations include trailing stops, which move with profitable positions, and stop-limit orders, which control the execution price.