Browse Definitions :
Definition

stop loss order

Contributor(s): Matthew Haughn

A stop loss order is a market order that sets a minimum value, below which an investment broker sells a stock or other security at the next available time.

This order limits the potential for loss and as such, stop loss orders are an essential part of calculating the risk reward ratio of an investment.  Without this loss cutting measure, an investment has unlimited loss potential making the ratio incalculable: The entire investment can be lost unless there is either a stop loss order or a keen eye on the investment along with shrewd, unemotional and decisive action. Without a broker and a stop loss order, an investor is responsible for this decision.

Stop loss orders are common for longer term investments and can be useful for those who aren't able to consistently watch a stock. The decisive upfront decision on the maximum amount of tolerable loss also helps prevent an investor from behaving more like a gambler.

Stop loss orders aren’t foolproof. Although they can help limit risk, there’s no guarantee that they will limit the loss exactly at the established value, because the stock can only be sold while markets are open. Should a sudden drastic change occur outside of those hours, an investment might close one day well above the targeted value for a stop loss and open the next day significantly below it.

See an introduction to stop loss orders:

This was last updated in February 2016

Continue Reading About stop loss order

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

SearchCompliance

  • risk management

    Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings.

  • compliance as a service (CaaS)

    Compliance as a Service (CaaS) is a cloud service service level agreement (SLA) that specified how a managed service provider (...

  • data protection impact assessment (DPIA)

    A data protection impact assessment (DPIA) is a process designed to help organizations determine how data processing systems, ...

SearchSecurity

  • cybersecurity insurance (cybersecurity liability insurance)

    Cybersecurity insurance, also called cyber liability insurance or cyber insurance, is a contract that an entity can purchase to ...

  • phishing

    Phishing is a form of fraud in which an attacker masquerades as a reputable entity or person in email or other communication ...

  • cybercrime

    Cybercrime is any criminal activity that involves a computer, networked device or a network.

SearchHealthIT

SearchDisasterRecovery

  • business continuity plan (BCP)

    A business continuity plan (BCP) is a document that consists of the critical information an organization needs to continue ...

  • disaster recovery team

    A disaster recovery team is a group of individuals focused on planning, implementing, maintaining, auditing and testing an ...

  • cloud insurance

    Cloud insurance is any type of financial or data protection obtained by a cloud service provider. 

SearchStorage

  • NVMe over Fabrics (NVMe-oF)

    NVMe over Fabrics, also known as NVMe-oF and non-volatile memory express over fabrics, is a protocol specification designed to ...

  • logical unit number (LUN)

    A logical unit number (LUN) is a unique identifier for designating an individual or collection of physical or virtual storage ...

  • CIFS (Common Internet File System)

    CIFS (Common Internet File System) is a protocol that gained popularity around the year 2000, as vendors worked to establish an ...

Close