Orders & Risk
Stop Loss
An order that automatically closes a losing trade at a preset price to limit risk.
In practice
You buy EUR/USD at 1.1050 and place a stop loss at 1.1030 — a 20-pip risk. If price falls to 1.1030, the broker sells your position automatically and the loss is fixed near $200 on a standard lot, regardless of whether you were watching the screen.
Why it matters for traders
The stop loss is the single feature that makes trading survivable, because it removes the decision to take a loss from the worst possible moment — when you are in the trade and watching it go red. A trade entered with a stop is a defined risk; one entered without it is an open-ended gamble on your discipline.
Common pitfall
The temptation is to move the stop further out when price approaches it, 'to give it room' — which turns a defined risk into an open-ended one. Worse is deleting it entirely on a losing trade. Both convert a planned small loss into the large loss that sinks accounts. The rule: once a stop is placed, it only ever moves in the trade's favour — to break-even or to trail — never against it.
Putting it in context
This idea sits at the heart of survival in trading. Markets are uncertain by nature, so the only things fully under your control are where you enter, where you exit, and how much you risk — and order types are the tools that enforce those decisions. A rule worth adopting early is that every live position has a predefined exit before it is opened, placed as an actual order with the broker rather than a mental note. Mental stops are quietly abandoned exactly when they are needed most, during fast moves and emotional moments. Traders who last are rarely better forecasters than those who blow up; they are simply far more consistent about mechanics like this one.
Lessons that use this term
- How to place your first trade
Buy and sell, market vs pending orders, stop loss and take profit.
- Stop loss and take profit
Where to place your exits, and why they always go in with the trade.
- Weekend gap risk
Why a stop loss does not protect you between Friday's close and Sunday's open.
Related tips
Related terms
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