#StopLossStrategies What is a stop loss?

A stop loss order is an instruction to kill (end) a trade once a specific target is reached or exceeded. As the name suggests, the price a trade stops at is below the amount you paid. When you’re making a loss, the trade gets stopped. The counter to a stop loss order is a take profit order. With a take-profit order, the trade is stopped once you make a certain amount of profit.

Stop loss order vs. stop limit order

It’s important to explain the subtle difference between stop loss and stop limit orders.

A stop loss is an order that contains an instruction to buy (or sell) a security once its price reaches a certain point (i.e. a price lower than the amount you paid).

A stop limit is an order with two specific price points that have to be met.

The main difference between the two orders is the level of specificity. A stop loss order allows you to set a percentage loss. For example, you could set the stop loss to 10%. If the price of a security falls 10% or more from the price you paid, the order is cancelled.