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What is a stop-loss order?

A stop-loss is a resting order that automatically closes your position once price reaches a level you chose in advance — converting an open-ended loss into a planned, budgeted one. It is the cheapest piece of risk control in trading, and the most skipped.

How it works

You place a stop at the price where your trade idea is proven wrong. If price touches it, the order triggers — usually as a market order — and closes the position. Your maximum loss becomes a known number before you ever enter, which is what makes position sizing possible: risk per trade = distance to stop × position size.

Stop-loss vs liquidation vs "mental stop"

A stop-loss executes at your chosen level and costs a normal fee. Liquidation executes at the math's level and costs your margin. A "mental stop" — deciding you'll exit manually if things get bad — executes at your emotions' level, which under pressure means late or never. Livermore's confession applies: the loss itself costs little; refusing to take it is what does the damage.

Placing them well

A good stop sits where the setup is invalidated — beyond the swing level, outside the noise — not at a round dollar amount of pain. Then size the position so that distance equals about 1% of equity (calculator). In fast markets stops can fill with slippage, so on leveraged positions keep the stop far inside the liquidation distance to preserve your buffer.

FAQ

Can a stop-loss fail? It can fill worse than its trigger price in gaps or cascades — that's slippage, not failure. On liquid perpetual markets under normal conditions it will not be skipped entirely.

Stop-market or stop-limit? Beginners: stop-market — a bad fill beats no fill. A stop-limit can be skipped entirely in a fast move, which defeats the purpose.

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