Stop Loss
Also known as: SL, Stop Order
An automated order placed with a broker to close a position if the price moves against the trade by a specific amount.
Plain-English Meaning
A stop loss is your safety net. It tells the broker, "If the market goes the wrong way and hits this specific price, immediately cut my losses and close the trade." It prevents a small losing trade from turning into a disaster.
Why It Matters
Using a stop loss is considered the core pillar of risk management. It allows traders to define exactly how much money they are willing to risk on a single idea before admitting they were wrong.
Simple Example
You buy EUR/USD at 1.1050 and set a Stop Loss at 1.1030. If the market drops against you, the broker will automatically close the trade at 1.1030, capping your loss at 20 pips regardless of what happens next.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Moving a stop loss further away as the price approaches it because of a "feeling" the market will turn around. This defeats the mathematical purpose of the safety net and allows emotions to drastically increase account risk.