Risk Management
Stop-Loss
Definition
An order that automatically closes a trade when the price reaches a specified loss level, limiting potential losses.
How It Works
A stop-loss order automatically exits your position at a predetermined price to cap your loss. For example, if you buy EUR/USD at 1.1000, you might set a stop-loss at 1.0950 to limit your loss to 50 pips.
In prop trading, stop-losses are essential because breaching drawdown limits means losing your funded account. Some firms require mandatory stop-losses on every trade.
Even when not required, using stop-losses is considered best practice. The key is placing them at logical levels (support/resistance, ATR-based) rather than arbitrary distances.
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