Understanding Stop Loss Orders

A stop loss is a protective tool traders use to automatically exit a position when the price hits a predetermined level. Think of it as your safety net—it caps your losses before they spiral out of control.

Here's how it works: You set a price threshold below your entry point. If the market moves down and touches that level, your order executes instantly, closing the trade. This prevents emotional decisions during downturns and keeps your portfolio from taking catastrophic hits.

Example: You buy Bitcoin at $45,000 and set a stop loss at $42,000. If BTC drops to $42,000, your position automatically closes, limiting your loss to 3K. Without this, you might panic-sell at $40,000 or hold all the way to $35,000.

Traders across crypto markets—from spot trading to derivatives—rely on stop losses to manage risk systematically. It's not about predicting the bottom; it's about protecting capital so you can trade another day.