Stop Loss

What is a stop loss?

A stop loss is a planned exit level or order instruction used to close a trade after price reaches a trigger. It helps you define the loss you expect before entry, but it does not guarantee the exact exit price or final loss.

The wording and order behaviour can differ by instrument, broker and platform. Check the specification for the order you are actually using.

Fictional XAUUSD London-session example

Imagine you plan an XAUUSD breakout during the London session. You choose an entry and a stop below the level that would invalidate your setup. After you choose the position size, the order ticket estimates a planned loss of $50 if the stop fills at the expected price.

The $50 is an estimate for this fictional example. It is not a recommended amount and it is not a guaranteed maximum.

Plan, trigger and fill are three different things

1. Planned stop level: the price level written into your trade plan.
2. Trigger: the event that activates the exit instruction under your platform's order rules.
3. Actual fill: the price where the exit is completed.

In a calm market, the fill may be close to the planned stop. During fast movement, a price gap, a wider spread, or slippage, the fill can be different. That difference can make the realised loss higher or lower than the estimate.

What about a stop-limit order?

Some platforms offer an instruction commonly called a stop-limit order. It combines a trigger with a limit on the acceptable execution price. The trade-off is that the order may remain unfilled if that price is unavailable.

Order names and mechanics vary. Check whether your instrument and platform support this instruction and how it behaves before relying on the label.

Your stop and position size work together

The stop distance and trade size determine the estimated USD loss. If you move the stop farther away without reducing the size, the planned loss increases. Recalculate the estimate whenever one of those inputs changes.

A stop also does not replace the current daily drawdown limit or overall drawdown limit for your exact account. Your firm's current dashboard and rulebook decide whether a result is a breach.

Use the stop as one part of the plan

Your written setup should explain what invalidates the trade, how size is calculated, and what you will record if the exit differs from the plan. The stop provides the risk side of the risk-reward ratio. The forex and prop-firm risk-management guide explains the wider process.