Plain English
A stop-loss is an order that automatically closes a position when the price reaches a predetermined adverse level. The basic risk-management tool: cap your loss at a number you decided in advance.
How it actually works
Two flavors. A stop-market order triggers a market sell when the price hits the stop level — you exit at whatever the next available price is, which can slip in volatile markets. A stop-limit order triggers a limit order at a specific price — you control the price but might not get filled if the market gaps through the level. Traders use stops to enforce discipline: pre-commit to the exit so emotion does not override the plan in the moment.
What it means for you
For active traders, stops are essential discipline. For long-term holders, they are usually counterproductive — you get stopped out during normal volatility and miss the recovery. The right tool depends on the timeframe.
We cover stop-loss strategy for active positions and the structural argument against stops on long-term spot holdings. Discipline is timeframe-specific.
Educational content only. Not investment, tax, or legal advice.