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How to place a stop-loss order

A stop is a trigger, not a promise. It says where you want to start getting out - the price you actually get is a separate question, and the difference between the two is where most of the surprises live.

7 min read

A climber's rope threaded through an anchor bolt fixed into rock
Placed before the fall, at a point chosen for the rock rather than for how far you would like to drop.

Buy at $100, put a stop at $95, and you have defined where the idea stops being worth holding. The order sits with the broker and closes the position if the market gets there, whether or not you are watching.

That much is simple. The part worth understanding is what happens at the moment it triggers.

The two things it does for you

The obvious one is closing a trade you would otherwise hold too long. The less obvious one is that it makes the trade measurable: once you know the distance between entry and stop, you can work out what size the position should be, which is the whole of position sizing.

Without a defined exit there is no risk figure, and without a risk figure there is no way to choose a size except by what the margin permits.

Where to actually put it

There is no universally correct distance. What these methods have in common is that the level comes from the market or the strategy - never from the amount of money you would like to lose, which is what the position size is for.

  1. Below the structure that justified the trade

    If you bought because a level has repeatedly held, put the stop beyond that level. A decisive break through it means the reason for the trade has gone, which is exactly the condition you want to exit on.

  2. Beyond a recent swing high or low

    For a long position, below the last meaningful low; for a short, above the last high. A new low invalidates a bullish sequence, so the stop and the trade idea fail at the same moment rather than at different ones.

  3. A multiple of recent volatility

    Average True Range measures how far an instrument typically moves. A stop at two ATR sits outside ordinary noise and widens automatically when the market becomes livelier, at which point the position size comes down to compensate.

  4. A fixed distance, consistently applied

    Fifty pips, a hundred index points. Simple, testable, and blind to changing conditions - a distance that is generous in a quiet week can be very tight in a volatile one.

  5. A percentage of the entry price

    Easy to calculate and the least adaptive of the five. Five per cent is an enormous move for a major currency pair and an unremarkable one for a small-cap share, so the same rule means different things in different markets.

Put the stop where the trade is wrong. Then size the position so that being wrong costs what you decided it should.

Doing it the other way round is how stops end up somewhere convenient rather than somewhere meaningful.

Gaps are the case a stop cannot handle

A market gap is when the next available price is a long way from the last one, with nothing tradable in between. A share closes at $100 and opens at $85 after an earnings announcement; a currency reopens on Sunday evening well away from Friday's close after a weekend event.

Your stop at $95 does not fail - there was simply never a price there to fill at. It executes at the first level that exists, and the planned $5 loss becomes $15. This is the single largest risk of holding leveraged positions through closures and scheduled announcements, and it is why the size of the position matters more than the placement of the stop.

Standard stop versus guaranteed stop

A guaranteed stop is the one product that closes the gap between trigger and fill. It is not free and it is not widely offered.

Standard stop

Triggers at your price, then executes at the next available one. Slippage can go either way and is usually small.

No charge beyond normal trading costs, available on essentially every instrument at every broker.

Across a gap, the fill can be far past your level and the loss much larger than planned.

Guaranteed stop

Closes at exactly the level you set, even if the market jumps straight past it. The broker absorbs the difference.

Usually costs a premium, often carries a wider minimum distance from the current price, and is restricted to certain instruments.

The premium is frequently refunded if the stop is never triggered. Check the specific terms, because they vary.

Eleven of the hundred brokers we rate record guaranteed stops among their order types.

The brokers in our records offering guaranteed stop-loss orders, in rating order.

Availability and cost vary by instrument and by the entity holding your account. Each review records what we hold.

Stop-limit: price control, at a price

A stop-limit adds a floor to the fill. Stop at $95, limit at $94, and the order will not execute below $94 - so a gap to $92 leaves it unfilled.

Read that again, because it is the trade-off in full: you have protected yourself from a bad price by keeping the losing position. In a market falling fast, a standard stop gets you out badly and a stop-limit may not get you out at all. Which risk is worse depends on the instrument and on how much further it can fall.

Eighteen of our hundred brokers record stop-limit among their order types.

Moving a stop, and the one direction that is usually a mistake

Widening a stop after entry increases the risk you already sized for. A 20-share position with a $5 stop risked $100; move the stop to $10 away and it risks $200, decided in the middle of a losing trade rather than before it. Done repeatedly, it undoes the entire position-sizing calculation.

Tightening is more defensible but not automatically right - a stop moved aggressively closer will be caught by ordinary movement. Moving one to break even sounds like removing risk and does not quite: spread, commission and financing mean an exit at the entry price is usually a small net loss, and the trade may be closed by noise before the move you expected arrives.

Systematically moving a stop in your favour as a trade develops is a trailing stop, which is a defined method rather than an in-flight decision.

Stop hunting

Price often runs just past an obvious level and reverses. Traders call this stop hunting, and the mechanism is less sinister than the name: obvious levels attract clustered orders, clustered orders are liquidity, and markets routinely test where liquidity sits.

Round numbers concentrate this - 1.1000 on EUR/USD, $3,000 on gold, $100,000 on Bitcoin - because everybody can see them. The practical response is to place stops beyond the obvious level rather than exactly on it, and to accept that a stop sitting where thousands of others sit is more likely to be reached.

Before you place one

  • What price would tell me this trade is wrong?
  • Why that price, in terms of the market rather than my account?
  • How far is it from my entry?
  • What position size makes that distance cost what I intended?
  • How volatile is this instrument right now?
  • Could it gap: earnings, a weekend, a scheduled announcement?
  • Is a guaranteed stop available and worth the premium here?
  • Under what specific conditions, decided now, would I move it?

Questions people ask about stop losses

Does a stop loss guarantee my exit price?

No. A standard stop guarantees that closing begins when your price is reached, not the price you receive. Only a guaranteed stop-loss order promises the level itself, subject to its terms.

Can I lose more than my stop loss?

Yes, if the market gaps or moves fast enough that the next available price is beyond your level.

Where should I put my stop loss?

At the price that would make the trade wrong. Structure, swing levels and volatility are the common ways of identifying it; the amount of money you want to risk decides the position size instead.

Should I set the stop based on how much I want to lose?

No. That is the position size. Setting the stop from a dollar figure puts the exit at a price with no meaning to the market, where ordinary noise can reach it.

Is a stop-limit safer than a stop loss?

It is safer against a bad fill and riskier against not getting out. A stop-limit can leave you holding a position that keeps falling.

Is a break-even stop risk free?

Not quite. Spread, commission and financing mean an exit at your entry price is normally a small net loss, and moving there early can close a trade that was about to work.

Can my broker close me out before my stop is reached?

Yes. If the account hits the stop-out margin level, positions can be liquidated regardless of where their individual stops sit.

Do stop losses work when the market is closed?

The order remains with the broker, but it cannot execute while there is no market. It acts on the first available price when trading resumes, which after a gap can be well past your level.

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Nothing here is financial advice. Leveraged products can lose more than they make.

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