Stop-loss

After opening a position, price may move against the trader. Without an exit order, the position remains open and the loss can continue to grow. A stop-loss lets the trader decide in advance when to exit.

The trader chooses a stop price. If the market reaches that price, the stop-loss triggers an order to close the position automatically. This can happen even when the trader is not watching the chart.

In this example, the trader enters a long position at $100 and decides to exit if price falls to $95. Use the controls beside the chart to set the stop-loss at $95.

The difference between the $100 entry and the $95 stop-loss is the planned risk per share.

With ten shares, the $5 planned risk applies to each share. The total planned risk is therefore $50.

The stop price is not a guaranteed exit price. If price moves quickly or gaps below $95, the position may close at a lower price. The final loss can therefore be larger than planned.