Stop loss
TradingDefinition
An order that automatically sells (or buys, in a short position) once a stock crosses a trigger price. Designed to cap losses on a position. Becomes a market order at the trigger, so in a fast-falling market the actual fill can be well below your stop ("gap risk").
Better alternative for volatile stocks: stop-limit (won't fill below a floor) or simply mental stops you execute manually. Be wary of placing stops at obvious technical levels — algos hunt them.
Better alternative for volatile stocks: stop-limit (won't fill below a floor) or simply mental stops you execute manually. Be wary of placing stops at obvious technical levels — algos hunt them.
Example
You buy XYZ at $100. You set a stop-loss at $90. If XYZ trades down to $90, your shares are sold at the next available price. If overnight news drops it from $95 to $80, your fill is around $80, not $90.