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Stop-Loss

A stop-loss is a conditional exit order that triggers when price reaches a specified level, causing the position to close. The two most common forms are a stop-market order, which becomes a market order at the trigger price and fills at the next available price, and a stop-limit order, which converts to a limit order at the trigger and only fills if the specified limit price is available. In fast or gapped markets, the fill price on a stop-market can differ from the trigger level, a difference known as slippage.

Stop-losses are closely related to position sizing: the distance between entry and the stop level, combined with position size, determines the maximum capital exposed if the stop is reached. A stop-loss placed at a given distance from entry has different capital implications depending on how much leverage is applied. In perpetual futures, the exchange's own liquidation mechanism enforces an involuntary exit when margin is exhausted — a stop-loss is a voluntary, pre-emptive version of the same idea.

A stop-loss is a mechanical instruction set in advance, not a guarantee of the exit price obtained. Its function is to replace an in-the-moment decision with a pre-committed rule, removing the need to act during market stress. The actual outcome depends on order type, market conditions, and exchange execution.