Legal Definitions - stop-loss order

A stop-loss order is a type of order in the stock market that instructs a broker to buy or sell a security when its price reaches a certain level, known as the stop price. This order is used to limit an investor's loss or protect their profit.

For example, if an investor buys a stock at $50 per share and sets a stop-loss order at $45, the broker will automatically sell the stock if its price drops to $45 or below. This helps the investor limit their loss if the stock price continues to fall.

Another example is if an investor buys a stock at $50 per share and sets a stop-loss order at $55, the broker will automatically sell the stock if its price rises to $55 or above. This helps the investor protect their profit if the stock price starts to decline.