A stop loss order is a normal order placed with a broker to sell a security when it reaches a certain predetermined price called the trigger price. This is the price at which the stop loss is triggered. Sometimes the market movements defy your expectations. Such market reversals often result in loss-bearing transactions. The stop loss trigger price is your defense mechanism – an amount at which you will be able to sustain yourself against such unanticipated market movements. A stop loss, as the name suggests, will only limit your loss. You will still incur a loss but this works like an insurance policy in limiting your risk. For example, if you bought a stock at Rs. 10, you place a stop loss order with your broker to sell it, if it reaches Rs. 8. This helps you prevent further loss, in the eventuality that the price of the stock might dip even further. Thus, it helps to limit your loss or protect unrealized profits, whichever the case. More importantly, your performance is now more predictable as you know that in any scenario your overall loss will not be more than Rs.2 per share.