Orders and trading · updated October 21, 2026
What is a stop-loss and how do you set one
A stop-loss is an order that sells your stock automatically if the price falls to a level you choose, to cap your loss. When the price hits that level, the order turns into a market order and sells at the first price available.
How it works
You pick the trigger price (the stop). While the price stays above it, the order just waits. When a trade happens at the stop price or lower, the order goes to the market and sells at the best price available at that moment, which can be below your level.
Worked example
You buy a stock at $100 and set a stop-loss at $90, so you accept a loss of at most 10%.
If bad news comes out overnight and the stock opens at $82, the stop-loss sells at around $82, not $90. The real loss is 18%.
Worth knowing
A stop set too close to the price gets triggered by ordinary daily moves. Many investors place it below a support level, or one to two times the stock's daily volatility away.
When a stop-loss can fool you
The overnight gap: a stop-loss does not guarantee the price; when the stock opens sharply lower, you sell well below your level. Automatic panic selling: in a sudden drop lasting a few minutes, you can sell right at the bottom, before the rebound. Long-term holding: for investors who keep a good stock for years, a tight stop-loss often sells for no good reason.
Related terms
Learn it in the Academy
Questions about a stop-loss
Does a stop-loss guarantee the selling price?
No. It only guarantees that the order is triggered. The final price can be lower, especially at the open or after news.
How far away should I set a stop-loss?
There is no number that suits everyone. For a stock that moves 2% a day, a stop at 3% triggers often. Many use 8-15% or a technical support level.
These explanations are for information only. They are not a recommendation to buy or sell.
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