Stop Loss refers to a risk management technique used by traders and investors to mitigate potential losses on their positions by setting a price at which a trade is executed automatically.

The purpose of a stop loss is to limit the potential downside of a trade or investment. When a trader sets a stop loss order, it acts as a safety net, ensuring that if the price of the asset drops to or below the stop price, the asset will be sold automatically. This helps traders avoid larger losses if the market moves against their position.

For example, let’s say a trader buys a certain cryptocurrency token at $100, but they are concerned that its price might drop significantly. To protect their investment, they could set a stop loss order at $90. If the price of the cryptocurrency falls to $90 or below, the stop loss order would be triggered, and the trader’s holdings would be sold automatically, limiting their potential loss.