In plain English
What Stop-loss order means
For a long position, a stop-loss is usually a sell stop below the current market. For a short position, it is usually a buy stop above the current market. It is designed as an exit instruction, not a prediction that the loss will be limited to an exact cash amount. A stop may be triggered by short-lived price movement.
Why it matters
A stop-loss order can set a predefined point for attempting to exit a losing position when the trader is not watching the market. It does not remove market risk: gaps, rapid repricing, and thin liquidity can produce a materially worse fill than the stop price. A stop can also close a trade before a later recovery.
Example
A trader buys EUR/USD at 1.0842 and sets a sell stop-loss at 1.0800. If the applicable sell-side trigger reaches 1.0800, the order activates. Following unexpected news, available bids may be at 1.0792. In this simplified example, the position closes 8 pips below the stop level, illustrating slippage.
Quick answers
Common questions
Is a stop-loss order always a market order?+
A standard stop-loss commonly becomes a market order when triggered, but some providers offer stop-limit variants or platform-specific conditional orders. Their terms, trigger method, and execution behavior should be checked before use.
Can a stop-loss close at a price worse than its level?+
Yes. If the market gaps through the stop level or liquidity is limited, the market order created by a standard stop can execute at the next available price, which may be substantially worse.
Sources