What is a stop-loss order, and why is it important?

A: A stop-loss order is a predetermined price level at which a trader will exit a position to limit potential losses. It is an essential risk management tool that helps traders protect their capital and avoid significant losses during unfavorable market conditions. By setting a stop-loss order, traders can ensure they have a clear exit strategy and reduce the emotional impact of trading decisions.

Last updated: April 7, 2026