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Stop Loss
A “stop loss” is a risk management tool used by traders to limit potential losses on a specific trade. It is essentially an order placed with a cryptocurrency exchange to automatically sell a specified amount of a particular cryptocurrency at a predetermined price or percentage level below the current market price.
The purpose of a stop-loss order is to protect traders from significant losses in case the market moves against their position. When a trader sets a stop-loss order, they are defining the maximum amount of loss they are willing to tolerate on a trade. If the market price reaches or falls below the specified stop-loss level, the exchange executes the sell order, limiting the trader’s losses to the predetermined amount.