An order that automatically closes a position at a predetermined price to limit losses. The most important risk management tool in forex trading.
What Is a Stop-Loss?
A stop-loss is a protective order attached to an open position that automatically closes it when the price reaches a specified level. If you buy EUR/USD at 1.0850 and set a stop-loss at 1.0820, your position closes automatically if the price drops to 1.0820, limiting your loss to 30 Pips.
Setting Stop-Loss Levels
Effective stop-loss placement balances two concerns: close enough to limit damage, but far enough to avoid being triggered by normal market noise. Common approaches include placing stops below recent support (for long trades), below a moving average, or a fixed number of pips based on the pair's average volatility. The key is to place your stop at a level where your trade thesis is clearly wrong.
Position Sizing with Stop-Losses
Your stop-loss distance determines your position size. If you risk 1% of a $10,000 account ($100) with a 25-pip stop on EUR/USD, you can trade 4 micro lots (25 pips x $0.10 x 40 = $100). Our Position Size Calculator calculates the exact position size for any stop-loss distance and risk percentage.
Related Terms
Take-Profit
An order that automatically closes a position at a predetermined price to lock in profit. It is the profit-side counterpart to a stop-loss.
Trailing Stop
A stop-loss that moves automatically in the direction of profit as the market moves in your favor. It locks in gains while staying a fixed distance from the current price.
Risk-Reward Ratio
The relationship between how much you risk on a trade and how much you stand to gain. A 1:2 risk-reward ratio means you risk $1 to potentially make $2.
Stop Order
An order to buy above or sell below the current market price. Stop orders become market orders once the trigger price is reached.
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