What It Means
A stop-loss order is a standing instruction to your broker to automatically sell (or buy) a security once it reaches a specific price — a pre-set exit that caps how much you can lose on a trade before you have to react in the moment.
How It Works
You set a stop price below your entry for a long position (or above it for a short). The order sits inactive until the market touches that level, then converts to a market order and fills at the next available price — which can differ from the stop price in fast-moving markets. That gap is called slippage.
Example
You buy 100 shares at ₹500 and decide ₹480 is where your thesis is wrong. You place a stop-loss at ₹480. If the stock drops there, your order triggers and sells at the next available price — ₹480, ₹479.50, or lower in a sharp gap-down.
Warning
Placing a stop-loss exactly at an obvious chart level, like a recent low, makes it a target for "stop hunting" — short-term volatility clips the stop right before the market reverses in your favor.
Common Variants
- Trailing Stop — automatically moves with the price in your favor, locking in gains while still capping downside.
- Stop-Limit Order — converts to a limit order instead of a market order once triggered, controlling price but risking non-execution in fast markets.