Stop loss is an order placed with an exchange to automatically sell an asset if its price falls to a predetermined level. The purpose is to limit potential losses by exiting before the market moves further against the trader’s position. Stop losses are a core risk management tool and mandatory when trading with leverage.
Example:
A trader buys ETH at $3,000 and sets a stop loss at $2,800. If ETH drops to that level, the order executes automatically, capping the loss at $200 per coin.