Crypto glossary
Stop-loss order
A stop-loss order is an instruction that closes a position automatically once the price reaches a set level, to cap the loss a trader is willing to take.
A stop-loss order stays dormant until the market trades at a chosen trigger, the stop price. Once triggered, it becomes either a market order, which exits at whatever price is available, or a limit order, which exits only at a set price or better. For a long position the stop sits below the entry price; for a short position it sits above.
Most exchanges and derivatives platforms let traders attach a stop-loss when opening a trade, often together with a take-profit order. With leverage it is a key tool, because a stop placed before the liquidation price lets the trader exit with a controlled loss instead of losing the whole margin. Trailing stops move the trigger along as the price moves in the trader's favor.
A stop-loss does not guarantee the exit price. In a sudden crash the order can fill well below the trigger, and a stop-limit may not fill at all. Stops placed at obvious round numbers can also be hit by brief wicks before the price recovers.
Example
A trader buys BTC at 60,000 dollars and sets a stop-loss at 57,000; if the price drops to that level, the position is sold automatically, limiting the loss to about 5% before fees.
