What is stop loss?
A stop loss is an order you give to the trading platform to close your position if the price reaches a level you decide. This way, you prevent losses from increasing further if the market moves against you.
What is it for?
Stop loss is used to protect your capital. If you enter a trade thinking that the price will go up, but it goes down instead, the stop loss limits how much you can lose. This helps you control your risk and not lose more than you are willing to accept.
How to use?
1. Define an acceptable loss level: Before opening a trade, you decide how much you are willing to lose.
2. Place the stop loss order: When you open the trade, you define a price at which it will automatically close if the market moves against you.
For example: If you buy a stock at $100, you can place a stop loss at $95. If the price drops to $95, the platform automatically sells so you don't lose any more.
3. Adjust as the trade progresses: If the market goes in your favor and the price rises, you can move the stop loss higher to secure your profits. This is called a "trailing stop."
Stop loss is key to managing risk and keeping your capital safe, especially in volatile markets.
