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SL
(Stop Loss Order)
An SL (Stop Loss Order) automatically sells a security when it falls to a specified price, limiting potential losses. For example, setting a $45 stop on a $50 stock limits loss to 10%.
Stop losses become MKT orders when triggered, so actual sale price may differ during volatility. Traders often combine stops with LMT orders to create stop-limit orders. Psychological studies show traders using stops outperform those who don't by 3-5% annually. However, stops can prematurely exit positions during normal fluctuations. The 2008 "stop loss run" demonstrated how clustered stops can accelerate declines.
Stop losses become MKT orders when triggered, so actual sale price may differ during volatility. Traders often combine stops with LMT orders to create stop-limit orders. Psychological studies show traders using stops outperform those who don't by 3-5% annually. However, stops can prematurely exit positions during normal fluctuations. The 2008 "stop loss run" demonstrated how clustered stops can accelerate declines.