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Stop loss order definition

Stop loss order

This is an order placed to sell below the current price (to close a long position), or to buy above the current price (to close a short position). Stop loss orders are an important risk management tool. By setting stop loss orders against open positions you can limit your potential downside should the market move against you. Remember that stop orders do not guarantee your execution price – a stop order is triggered once the stop level is reached and will be executed at the next available price.

However, stop-losses do come with danger. If the price of an asset jumps over the price specified in the stop-loss order, the order will instead be triggered at a price below your stop-loss order, putting you at risk of even greater loss. For a premium fee many brokerages, including FOREX.com, offer guaranteed stop-loss orders, which guarantee your stop-loss is triggered at the specified price, even if the price action jumps over it.

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