<p>A Sell Stop, also known as a stop-loss order, is a type of order placed by traders to automatically sell a security when the price reaches a specified level below the current market price. This order is designed to limit potential losses if the market moves against the trader's position.</p>

<h2>How It Works</h2>
<p>A Sell <a href="/NewSite/encyclopedia/stop-order/" class="ency-link">Stop order</a> is placed below the current market price. When the price of the asset reaches the stop-loss level, the order is triggered, and a market order is placed to sell the asset at the best available price. Here's a step-by-step breakdown:</p>
<ul>
  <li>Trader places a Sell Stop order at a specific price (stop-loss level) below the current market price.</li>
  <li>If the market price reaches the stop-loss level, the Sell Stop order is triggered.</li>
  <li>A market order is placed to sell the asset at the best available price.</li>
  <li>The trade is executed at the best available price, which may be different from the stop-loss level due to market liquidity and volatility.</li>
</ul>

<h2>Why It Matters for Traders</h2>
<p>Sell Stop orders play a crucial role in risk management for traders. Here's why:</p>
<ul>
  <li><strong>Limiting Losses:</strong> Sell Stop orders help traders limit their potential losses by automatically closing out a position when the market moves against them.</li>
  <li><strong>Automating Risk Management:</strong> Traders can set and forget their stop-loss levels, allowing them to focus on other aspects of trading without constantly monitoring their positions.</li>
  <li><strong>Opportunity Cost:</strong> By limiting losses, Sell Stop orders can help traders preserve their capital, enabling them to take advantage of new trading opportunities that may arise.</li>
</ul>

<h2>Example</h2>
<p>Let's say a trader buys EUR/USD at 1.2000, expecting the price to rise. To limit potential losses, the trader places a Sell Stop order at 1.1950. If the market price falls to 1.1950, the Sell Stop order is triggered, and a market order is placed to sell EUR/USD at the best available price. This helps the trader limit their losses to 50 pips (0.0050) per lot.</p>

<h2>Key Takeaways</h2>
<ul>
  <li>Sell Stop orders are used to limit potential losses by automatically selling an asset when the market price reaches a specified level below the current market price.</li>
  <li>When triggered, a Sell Stop order places a market order to sell the asset at the best available price.</li>
  <li>Sell Stop orders play a crucial role in risk management for traders by helping to limit losses and preserve capital.</li>
</ul>