Stop loss
A stop loss is an exit order resting at a price worse than the current one: below the market for long positions, above it for shorts. When price reaches it, the position closes without you acting. It is the mechanism that turns "I'll risk $100" from an intention into a rule.
Stops execute as market orders once triggered, so in fast markets the fill can be worse than the stop price — that difference is slippage. This is normal and must be part of any realistic test of a strategy.
Covered in depth in Lesson 03: Risk management before anything else.
Related terms
- Take profit — An order that closes a position automatically at a predefined better price, locking in a gain.
- Slippage — The difference between the price an order requested and the price it actually filled at.
- Risk per trade — The fraction of account equity a single trade can lose if its stop loss is hit.
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