Stop Loss (SL)
Also called: SL, stop, protective stop
A pre-set order that closes a losing trade automatically at a maximum acceptable loss.
Definition
Stop Loss (SL) is the single most important risk-control tool in trading. It defines the worst case for a trade before you take it, and removes the emotional ‘just one more pip’ decision when price moves against you.
Stops should be placed based on price structure (beyond a swing high/low, or outside a volatility envelope), then position size sized so the distance-to-stop equals your planned risk per trade.
Example
Account: $10,000. Risk per trade: 1% ($100). Trade: buy EUR/USD with stop 25 pips away. Position size: $100 ÷ (25 pips × $10/pip per lot) = 0.4 lots.
Formula
Position size (lots) = Account risk ($) ÷ (Stop distance × pip value per lot)
Why it matters
Setting stops based on dollar-amount only (e.g. '$50 max') leads to stops too close to obvious price levels — and frequent stop-outs on noise. Anchor stops to structure first, then size the position.
FAQs
Can my broker hunt my stop loss?
Reputable regulated brokers don't — but B-book market makers can see your stop and have an incentive to push price there. Use a regulated ECN/STP broker for sensitive strategies.
Is a mental stop loss enough?
Almost never. Discipline fails under pressure. Put the stop in the platform.