Educational purposes only. This content does not constitute investment advice. Read our disclaimer
StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
An order to sell automatically if a stock drops to a certain price.
Why It Matters
Stop losses are your automatic ejection seat. You buy a stock at $100 and set a stop loss at $90 - if it drops to $90, it sells automatically, limiting your loss to 10%. Professional traders rarely enter a position without knowing their exit point. It removes emotion from the 'should I sell?' decision during scary drops.
Key Points
- Common strategy: Set stop loss 10-15% below purchase price to limit downside
- Trailing stop loss: Moves up with the stock price, locking in gains while protecting against drops
- Warning: Stop losses can trigger on temporary dips - a stock might hit $90, trigger your sell, then bounce back to $110
Try the Calculator
Position Size Calculator
Put your knowledge of stop loss into practice with our free calculator.
Related Terms
Common Questions
An order to sell automatically if a stock drops to a certain price. Stop losses are your automatic ejection seat. You buy a stock at $100 and set a stop loss at $90 - if it drops to $90, it sells automatically, limiting your loss to 10%.
Stop losses are your automatic ejection seat. You buy a stock at $100 and set a stop loss at $90 - if it drops to $90, it sells automatically, limiting your loss to 10%. Professional traders rarely enter a position without knowing their exit point. It removes emotion from the 'should I sell?' decision during scary drops.
Common strategy: Set stop loss 10-15% below purchase price to limit downside
Trailing stop loss: Moves up with the stock price, locking in gains while protecting against drops
Warning: Stop losses can trigger on temporary dips - a stock might hit $90, trigger your sell, then bounce back to $110