What is Stop-Loss Order?
A standing order to sell a stock once it falls to a preset price.
Formal Definition
A stop-loss order automatically triggers a market or limit sell once a security trades at or below a specified stop price, capping downside on a position without requiring the investor to watch it. In fast-moving markets the execution price can slip below the stop, so a stop limits but does not guarantee the loss.
In Simple Terms
It is an automatic sell trigger you set in advance, so if a stock drops to a price you cannot accept, it sells itself and stops the bleeding. It takes the emotion out of cutting a loser.
Example
Buying a stock at $100 and placing a stop-loss at $90 caps the intended loss at roughly 10%.