A stop-loss order sits inactive until the market trades at your trigger price. Once triggered, it typically becomes a market or limit order to close the position. It is a discipline tool, not a perfect shield: in a fast gap the fill can be worse than the stop level you wrote down.
Key takeaways
- Stop-losses automate an exit when price moves against you.
- Gaps and thin liquidity can produce slippage past your stop price.
- Placing stops too tight can force you out on normal noise.
- Use them as part of a plan, not as a substitute for choosing sound investments.