Stop-Loss Order.

In plain English

A stop-loss order is a standing instruction that turns into a market order to sell once a security drops to a price you choose, called the stop price. The goal is to limit a loss or protect a gain without you having to watch the market. Because it becomes a market order when triggered, it sells at the best available price, which in a fast drop can be below your stop. On a sharp gap down, the actual sale price can be noticeably worse than the level you set.

01Why it matters

A stop-loss can keep a small loss from becoming a large one, but in a sudden plunge it may sell you out far below the price you picked, so the protection is not exact.

02The math, step by step

You own a stock now worth $50 and set a stop-loss at $45 to cap your downside. If the price falls to $45, the order triggers and sells at the next available price, which in a steep drop could be $44.50 rather than exactly $45.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT