Key Takeaways
Quick answer
A stop-loss is an order to sell (or buy back) once the price reaches a level you choose, called the stop price. When triggered it becomes a market order, so the SEC warns the fill can land well away from your stop in a fast market.
- A stop-loss turns into a market order once the price reaches your stop.
- The SEC says the stop price is not the guaranteed execution price, so fills can be worse.
- A stop-limit avoids a bad fill but may not execute at all if the price gaps past it.
How does a stop-loss order work?
The SEC’s investor site defines it plainly: “A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price.” The CFTC glossary adds that a sell stop sits below the current market and a buy stop above it.
FINRA, the US brokerage self-regulator, says a sell stop “allows you to limit losses (or preserve gains)” on a holding. That makes it a common tool alongside position sizing.
Why can a stop-loss fill below your stop price?
Reaching the stop does not lock in that price. In the SEC’s words, “The stop price is not the guaranteed execution price for a stop order.” The trigger simply sends a market order, which takes whatever bids exist at that moment.
Illustrative example: you buy a coin at $40 and set a stop at $36, planning to risk $4. The price drops from $36.20 to $34.80 before your order fills. Loss per coin: $40.00 − $34.80 = $5.20, which is 30% more than the $4.00 you planned.
How is a stop-loss different from a stop-limit order?
| Order | After the trigger | Main risk |
|---|---|---|
| Stop-loss | Market order | Fill worse than the stop |
| Stop-limit | Limit order | No fill if price gaps past the limit |
A trailing stop is a variant whose stop price follows the market at a set percentage or dollar distance.
What are the risks of relying on a stop-loss?
FINRA cautions: “Rapid price movement during a short period of time could trigger a stop order. Due to market volatility, the stock might later rebound and resume trading at its prior price level.” You could be sold out at the low. Platforms also differ in which price they watch to trigger a stop, so read the order rules before relying on one. These definitions come from US stock regulators; crypto platforms set their own terms.
Frequently asked questions
Does a stop-loss cap my loss at an exact amount?
No. It caps the trigger point, not the fill. In a sharp fall the executed price can be noticeably worse than the stop.
Is a stop-loss the same as a stop order?
Yes. Both the SEC and the CFTC glossary treat stop-loss as another name for a stop order.
Article Sources
4 sources
Blockhorizon checks every figure, date and quotation against primary sources: regulators, statistics bodies and original technical documents. Read our editorial policy.
- SEC Investor.gov, Investor Bulletin: Understanding Order Types — investor.gov (accessed 2026-10-02)
- SEC Investor.gov, Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders — investor.gov (accessed 2026-10-02)
- FINRA, Stop Orders: Factors to Consider During Volatile Markets (Mar 2025) — finra.org (accessed 2026-10-02)
- CFTC Glossary (S): Stop Order — cftc.gov (accessed 2026-10-02)