What does Stop-Loss Order mean?

A stop-loss order automatically sells a stock once it drops to a price you set, capping how much you can lose on a trade.

A stop-loss order automatically sells a stock once it falls to a price you choose, capping your downside without you having to watch the screen all day. A $50 stock with a stop at $45 sells on its own if it falls that far — your loss is capped near 10%, fees and slippage aside.

Stop-Loss Order example

You buy at $50 and set a stop at $45. If the price trades at $45 or lower, the stop becomes a market order to sell. If bad news makes the stock open at $40, you sell near $40 — the stop doesn't guarantee $45.

Common beginner mistake

Setting stops so tight that normal daily swings trigger them, then watching the stock recover without you.