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Stop Loss

Risk management

Definition

An exit order that closes a losing trade at a predetermined level. In a prop account, a stop is not just good risk management: it's what separates a bad trade from crossing the drawdown threshold and failing the account.

Detailed explanation

A stop placed in the market works even if the connection drops or the price jumps in a second. A mental stop depends on you, and in moments of pressure, it tends to move. The location is determined by the chart, and the quantity by the stop: first, decide where the trade is proven wrong, and only then how many contracts to open so that the loss remains within your planned limit. And remember that a stop is a conditional market order: in sharp movements, the fill can be worse than the level.

An example from the prop world

A trader plans to lose up to $250 on an MNQ trade with a stop of 25 points. Each contract risks $50, so they open 5 contracts and place the stop in the market even before looking at the target.

How it works at the firms on this site

Based on the rules listed on our firm pages. Rules get updated, so check the firm's page before buying.

Risk calculator

How many contracts to open against your stop and the account's loss limit

Order types: market, limit, and stop

A Market order fills immediately at the next available price. A Limit order fills only at the price you set or better, so it may not fill at all. A Stop order becomes a Market order when the price touches the level you set, which is how a stop loss is placed.

OCO and Bracket orders

A Bracket is an entry order that comes with a stop and a profit target. OCO (One Cancels Other) links the two exit orders: when one is filled, the other is canceled automatically.

Position size

The decision of how many contracts to open in a trade. It's calculated from the end to the beginning: how much you are allowed to lose per trade, divided by the loss of one contract up to the drawdown. In a prop account, this is the most important decision, because it determines how many mistakes the account can absorb before the threshold.

Risk-reward ratio

The ratio between what a trade risks until the drawdown and what it can earn until the target. A ratio of 1:2 means that for every dollar at risk, the target is two dollars. The ratio alone doesn't say much: it is read together with the success rate.

Trailing drawdown (order)

A stop order that automatically moves with the price when the trade is profitable, at a fixed distance, and does not move back. It locks in some profit without deciding in advance where to exit. Do not confuse it with the trailing drawdown: the trailing stop is your tool, and the trailing drawdown is an account rule.

End-of-day (EOD) trailing drawdown

End-of-day drawdown (EOD Drawdown) is a trailing maximum loss limit rule in which the loss threshold moves up only once a day, based on the closing balance. At most firms, however, the threshold itself is enforced in real time, so touching it during the trading day fails the account.