In stock-market trading, what does a stop-loss order generally do?

In stock-market trading, a stop-loss order generally limits potential losses by instructing a broker to sell when a specified stop price is reached. It is commonly used to manage downside risk on a long position.

When the stop condition is triggered, the order may become a market order, depending on the order’s design and brokerage rules. The eventual execution price can therefore differ from the stop price, especially in a fast-moving or illiquid market.

A stop-loss order does not guarantee a particular selling price or a profit. Gaps between trading sessions and sudden price movements can cause execution below the chosen level.

A related order, the stop-limit order, adds a limit price. That can control the worst acceptable price, but it also creates a risk that the order will not execute if the market moves beyond the limit.