Stop-Loss Order

Most exchanges offer stop-loss orders in two forms that behave differently once the trigger price is hit. A stop-market order converts into a market order the instant the stop price is reached, guaranteeing the position closes but not the exact exit price. A stop-limit order instead converts into a limit order at a chosen price, guaranteeing the fill price but not that the trade executes if the market gaps past it.

This distinction matters most during sudden volatility. In a fast crash, an order book can thin out within seconds, so a stop-market sell may fill well below the intended trigger, a cost known as slippage. A stop-limit order avoids bad fills but can go completely unfilled if price jumps straight through the limit level, leaving a trader exposed exactly when protection was needed most. On leveraged positions there is an added wrinkle: exchanges typically calculate forced liquidations from a mark price rather than the last traded price, so a stop set only against last price can trigger too late, or not before a margin call closes the position anyway.

Common practice is to place stops below clear support levels or size them to an asset's typical volatility (for example a multiple of average true range) rather than at round numbers, since obvious, predictable levels can attract concentrated selling that triggers a cascade of nearby stops, sometimes called stop hunting. Many exchanges also offer a trailing stop-loss, which automatically moves upward as price rises, locking in gains while keeping the same protective distance below the market.