A stop loss is an order that automatically closes a trade once price reaches a level you choose, capping how much a single trade can cost you. It turns risk from a feeling into a fixed number you decide before entering. Stops are usually placed beyond a logical level — past support, resistance, or recent structure — not at a random distance.
Buying XAUUSD at 2400 with a stop at 2390 risks 100 pips. If the stop is hit, the position closes there and the loss stops growing — no decisions made in the heat of the moment.
This definition is for educational purposes only and is not financial advice. Trading involves risk.