What is Stop loss?

What does Stop loss mean in practice?

It converts an open-ended risk into a bounded one. A stop is a decision made in advance, which is its value: it removes the temptation to hold a loser in the hope it recovers. It is also the anchor for position sizing, since risk per trade is the distance to the stop times the size.

Placement is a trade-off. Too tight and ordinary noise or the spread takes you out before the idea has a chance. Too wide and each loss is large. A stop does not guarantee the exit price either: in a gap or a fast market the fill can be worse than the level.

A worked example

Illustrative only: buy at 100 with a stop at 98. The most the trade is meant to lose is 2 per unit, though a gap down to 96 would fill worse than planned.

How to read or test it

Choose the stop from the market, such as a recent swing point or a multiple of average range, rather than from the loss you would like to take. Then size the position from it. Compare the stop distance with the spread and with typical noise on your timeframe: a stop inside normal noise will be hit by routine movement. Review your stopped-out trades afterwards to see whether the market later went your way, which suggests the stop was too tight.

How AKQX handles Stop loss

AKQX strategies carry configurable stop losses. A minimum stop distance and a fee-to-risk breaker refuse setups where a stop is so tight that cost dominates.

See Risk management tools for the feature page.

A common mistake

Moving a stop further away after entry to avoid being stopped out.

Related terms