Stop-Loss Orders are a vital tool used by traders and investors to protect against losses in their investments. A stop-loss order commonly refers to an order that tells a broker to buy or sell a security if it trades at a certain price. The order instructs that when the pre-determined price is met, the stop-loss order converts to a market order, which locks in the loss or profit of the position.

Stop-loss orders can be a powerful tool for both long and short positions. A long position is when an investor buys a security expecting it to increase in price. A short position is selling a security that an investor does not own with the expectation of the security decreasing in price. The stop-loss order is used to limit losses in either a long or short position. Stop-loss orders help investors manage risk and limit catastrophic losses by reducing their overall exposure.

It is important to not confuse stop-loss orders with stop-limit orders. A stop-limit order is a two-part order in which an investor will choose a stop-price and a limit-price. The distinction between this order and a regular stop-loss order is that a stop-limit order will execute at a specified price and not the market price. For example, if an investor chooses the stop price of $30 and the limit price of $29.50, the order will only execute if the trader can get the limit price.

Stop-loss orders can be an important tool for investors to protect their investments. They can help investors manage risk and limit their losses. It is important to understand the distinction between a stop-loss order and a stop-limit order in order to select the right tool for the job. Investors should be aware of the risks associated with all types of orders and use them based on their individual investment objectives.