What Is a Stop Loss and Why You Should Always Use One

A stop loss is an order that automatically closes a position once the price reaches a level you’ve set in advance, limiting how much you can lose on a single trade.

How it works

When you open a trade, you can attach a stop loss at a specific price. If the market moves against you and reaches that price, the position closes automatically — you don’t need to be watching the screen for it to trigger.

Why it matters

Without a stop loss, a losing trade can keep losing money indefinitely if you don’t intervene manually, especially during fast-moving markets or while you’re away from your screen. A stop loss caps that downside at a level you decided on calmly, before emotions were involved.

Setting a stop loss

Stop losses are often placed based on technical levels (like below a recent support level) rather than an arbitrary distance, and sized so the potential loss fits within your risk management rules — see our guide on the 1% rule for more on that.

A note on slippage

In fast-moving or illiquid markets, a stop loss may fill at a slightly worse price than requested — this is called slippage. It doesn’t happen often on major pairs during normal conditions, but it’s worth knowing about.

Key takeaway

A stop loss turns “how much could I lose on this trade” from an open-ended question into a number you chose on purpose. Most experienced traders treat it as non-negotiable on every trade.