DEFINITION

Stop Loss

A pre-defined price level at which a losing trade is closed automatically. The foundation of risk management — trading without a stop loss exposes the account to unlimited risk.

Related terms

Take Profit

A pre-defined price level at which a winning trade is closed automatically to lock in gains. Combined with stop loss, defines the trade's risk-reward ratio.

Risk per Trade

The percentage of account capital risked on a single trade. Conservative traders risk 0.5–1%. Standard risk management caps at 2% to survive losing streaks.

Position Sizing

The process of determining how many units, lots, or contracts to trade based on account size, risk per trade, and stop loss distance. Proper position sizing is the foundation of risk management.

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