A Stop-Loss Order is a type of order that automatically sells assets if their price falls to a pre-set level. The primary goal of a stop-loss order is to limit the losses that may occur due to a sharp price drop of an asset.

How a stop-loss order works:

The trader sets a price for the asset, at which point the sell order will automatically be triggered.
When the price reaches this level, the order is executed at the best available market price.
A stop-loss can be used for both selling (when the trader wants to minimize losses) and buying (in case of short-selling, to minimize losses if the asset price rises).

Example:

You have 1 BTC that you bought at $30,000.
To limit your losses, you set a stop-loss at $28,000.
If the price of Bitcoin drops to $28,000, the order will automatically be triggered, and your BTC will be sold at the market price, helping to avoid more significant losses if the price continues to fall.

Advantages:

Limit losses: The primary goal of a stop-loss order is to protect capital from significant losses.
Automation: The trader doesn’t need to constantly monitor the market, as the order is automatically triggered.
Risk control: Allows traders to predefine an acceptable level of loss and manage risk.

Disadvantages:

Executed at market price: A stop-loss order is executed at the market price, which may be worse than the set level in volatile conditions (the price may “slip” below the set level).
False signals: On volatile markets, temporary fluctuations can trigger the stop-loss even if the overall trend remains upward.

Types of stop-loss orders:

Trailing Stop: The activation price of the stop-loss changes according to market conditions. For example, if the asset’s price rises, the stop-loss “moves” along with the price, maintaining a set distance.

This type of order helps traders secure profits by adjusting the stop-loss level as the market price moves in their favor, while still providing protection if the price reverses.