This is an instruction given to a broker that limits the fallout from a trade that goes wrong.

For example you might buy a risky stock at £2 but set a stop loss at £1.80 and pay your broker the corresponding extra charge for doing so. Should the price fall heavily such that the £1.80 barrier is breached the stop loss kicks in and triggers a sell order on the stock. This will limit losses on the trade although it should be noted that only a “guaranteed stop” will ensure the protection kicks in at exactly £1.80. When markets are moving quickly standard stop orders will not always execute at the specified stop price.

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