I set a stop-loss. Why can I still lose more than I expected?
Let’s imagine:
You bought an asset for $100 and set a stop-loss at $95.
The logic is simple:
“I expect to lose about 5%.”
But the market doesn’t always move smoothly.
If the price drops sharply:
$100 → $95 → $90
the stop may trigger not at $95.
With a stop-market order, after the order is triggered, it is filled at available prices. With high volatility, slippage can occur between the trigger price and the actual fill price.
And with a stop-limit order, it’s different: you control the execution price, but with a very fast move the order may not get filled.
So a stop-loss is not a guarantee:
“I will definitely lose no more than 5%.”
It’s a risk-management tool, but the way the order is executed also matters.
That’s why before setting a stop, you should understand not only:
“Where will I exit?”
but also:
“What happens if the price crosses this level in a second?”
#Trading #RiskManagement
Let’s imagine:
You bought an asset for $100 and set a stop-loss at $95.
The logic is simple:
“I expect to lose about 5%.”
But the market doesn’t always move smoothly.
If the price drops sharply:
$100 → $95 → $90
the stop may trigger not at $95.
With a stop-market order, after the order is triggered, it is filled at available prices. With high volatility, slippage can occur between the trigger price and the actual fill price.
And with a stop-limit order, it’s different: you control the execution price, but with a very fast move the order may not get filled.
So a stop-loss is not a guarantee:
“I will definitely lose no more than 5%.”
It’s a risk-management tool, but the way the order is executed also matters.
That’s why before setting a stop, you should understand not only:
“Where will I exit?”
but also:
“What happens if the price crosses this level in a second?”
#Trading #RiskManagement
