A stop loss goes at the price where your trade idea is proven wrong, for example below a support level on a long. When the trigger price is reached, the exchange sends a market order (stop-market) or a limit order (stop-limit) to close the position. In fast markets a stop-market order can fill worse than its trigger price; that difference is slippage.
Example
You go long BTC at $64,000, and the setup fails if price breaks $62,800, the last higher low. You place a stop-market at $62,700 for some buffer. With 0.1 BTC, the planned loss is $130 plus fees. In a sudden drop the stop triggers at $62,700 but fills at $62,640, so the actual loss is $136.
Why it matters
Without a stop, one trade can wipe out weeks of gains, and on leveraged positions the liquidation engine ends up choosing your exit. A stop set before entry also makes position sizing possible, because you know the risk in advance.
Common mistake
Placing stops at obvious round numbers or just past the latest wick, where many other stops cluster. Those levels are often swept. Put the stop where the idea is invalidated, add a small buffer and size the position for that distance.
Put it into practice
- Free toolPosition size calculatorSize any futures trade from your account, risk % and stop. See quantity, notional, margin and whether your stop sits before the liquidation price.
- Free toolRisk/reward & break-even win rate calculatorEnter entry, stop and target to get the risk:reward ratio, the win rate you need to break even, and how fees change both.
FAQ
- Should a stop loss be a stop-market or a stop-limit?
- A stop-market guarantees the exit but not the price. A stop-limit guarantees the price but not the exit: if price jumps past your limit, you stay in a losing trade. Most traders use stop-market orders for protective stops.
- Should I move my stop to break-even?
- Doing it too early turns many winners into scratches. Some traders move it once price has made a new structure point or reached +1R; test the rule on your own trades.
- Do stop losses get hunted?
- Liquidity often sits at obvious levels, and price frequently trades through them before reversing. That is a reason to place stops at logical invalidation points instead of the most visible spot, not a reason to skip them.