Stop loss
Family II · Orders
Not to be confused with stop out, stop limit order, stop order, trailing stop.
Stop loss is an order type that converts into a market or limit instruction once a chosen trigger price is touched. It sits dormant in the order book until the trigger is reached, then acts to close the position. The trigger price is set by the trader, not by the venue.
How a stop loss works
A stop loss is defined by two prices: the trigger and the execution instruction that follows it. For a long position the trigger sits below the current market; for a short position it sits above. When the market trades at or through the trigger, the stop is activated and the resulting order is sent to the market.
Execution is not guaranteed at the trigger price. Slippage can occur in fast markets or when liquidity is thin, so the realised exit price may be worse than the trigger. Some venues support stop orders that become limit orders, which caps the exit price but risks no fill at all.
Regulatory treatment of stop losses varies by jurisdiction and instrument. Whether a stop loss is mandatory, permissible, or restricted depends on the product and the rules of the relevant market.
Worked example
The trigger was 95.00 but the fill came at 94.80, so slippage added 0.20 per share to the loss. The stop capped the loss near the intended level but did not fix the exit price.
Setting and managing a stop loss
Placement depends on the venue. Some accept a stop loss as a single resting order; others require the trigger and the exit instruction to be submitted together. A stop loss can be cancelled or amended while the position is open, and it is typically removed automatically when the position is closed.
- Fixed stop — the trigger stays at the level first set.
- Trailing stop — the trigger moves with the market in one direction only.
- Guaranteed stop — a venue-specific product that fixes the exit price for a fee; availability varies by broker and instrument.
Often confused with
- stop out
- A stop-out is a forced liquidation by the broker when margin falls below a required level, whereas a stop loss is a voluntary order placed by the trader; the visible sign is who initiates it — the venue's margin engine or the trader's own instruction.
- stop limit order
- A stop limit order attaches a limit price to the post-trigger instruction, so it may not fill at all, whereas a stop loss normally becomes a market order that fills but at an uncertain price; the visible sign is the presence of a second, limit price alongside the trigger.
- stop order
- A stop order is the broader category of any order activated by a trigger price, whereas a stop loss is a stop order used specifically to close a losing position; the visible sign is the stated purpose — exit at a loss versus entry or other use.
- trailing stop
- A trailing stop moves its trigger with the market in the favourable direction, whereas a stop loss keeps a fixed trigger unless manually amended; the visible sign is a trigger that changes without trader intervention.