What does Stop-Loss mean?

A stop-loss order (also known as a stop-market order  or stop order) means that you have given your broker instructions to sell your securities when they have reached a certain price. This strategy is used to limit losses on a given security.

For example, if you purchased a security for $100 per share and you place a stop-loss order instructing your broker to sell the stock if it reaches $90 per share, you will limit your losses to $10 per share. If the price continues to plummet down to $50 per share, you have effectively protected yourself from greater losses.

Stop-loss orders are useful tools to minimize losses at anytime. They are especially useful if you will be going on vacation or will be in a scenario where you won’t be able to give your stocks personal attention. If you would normally sell your stocks on your own when the price falls to a given price you might miss that opportunity without a stop-loss order in place such as when you are on a two-week backpacking trip.