TradingBeginner#Risk Management#Safety
Stop Loss
S
Definition
An order instruction that activates when a specified trigger is reached. Its behavior, trigger source, availability, and execution price depend on the venue and order type; it cannot guarantee a maximum loss.
Source reviewed
- SEC Investor.gov: Types of Orders opens in a new tab
Supports: Investor.gov explains that a stop order becomes a market order when the stop price is reached and distinguishes market, limit, buy stop, and sell stop orders.
- FINRA: Stop orders during volatile markets opens in a new tab
Supports: FINRA explains that a stop price is not a guaranteed execution price, short-lived moves can trigger an order, and a stop-limit order may not execute.
- FINRA Rule 5350: Stop Orders opens in a new tab
Supports: FINRA defines stop and stop-limit orders and notes that firms may use different trigger events when they disclose the order type clearly.
Concept Diagram
Key Takeaways
1
A stop is an execution instruction whose trigger and behavior depend on the venue and order type.
2
A stop market order can execute materially away from its trigger; a stop limit can remain unfilled.
3
Confirm the trigger price, time-in-force, venue custody, partial-fill rules, fees, and outage behavior.
4
Automation cannot remove gap, execution, liquidity, venue, custody, or system risk.
Practical Example
A trader sets a sell stop on a venue and records whether it triggers from last trade or mark price. During a fast move, the stop activates and submits a market order; the trader compares the actual fill, fee, and remaining position with the planned risk instead of assuming the trigger price capped the loss.
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Related Terms
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DCA (Dollar Cost Averaging)Investing equal amounts at regular intervals regardless of market movement. It can make a contribution schedule consistent; it does not assure growth, protect against loss, or make any crypto asset appropriate for a person.
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Hedge (Cobertura)A transaction or position intended to reduce a defined exposure to price changes. It can reduce one risk while leaving or adding others, so it is not insurance or a guarantee against loss.
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LiquidationA contract- or platform-defined process that closes or transfers a leveraged position when collateral no longer meets its maintenance requirement. The trigger, price source, penalties, partial-close rules, and loss outcome vary by product and venue.
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VolatilityThe extent to which an asset's price or returns varied over a stated period. A volatility figure is meaningful only with its asset, data, measurement window, and method.
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