A stop-loss order is a type of order that investors or traders use to limit their potential losses in the stock market. It is an order placed with a broker to buy or sell a specific stock once the stock reaches a certain price. The stop-loss order is designed to limit an investors loss on a security position. For example, setting a stop-loss order for 10% below the price at which you bought the stock will limit your loss to 10%.

Stop-loss orders are useful for several reasons. They help insulate your decision-making from emotional influences, as people tend to "fall in love" with stocks and maintain the false belief that if they give a stock another chance, it will come around. Stop-loss orders also help limit losses in case the securitys price drops below that price level, which is useful for hedging downside risk and keeping losses more manageable.

However, stop-loss orders do not guarantee that youll make money in the stock market, and you still have to make intelligent investment decisions. They can also lock in avoidable losses, and they dont always work as intended. Another potential pitfall of stop-loss orders is that they can trigger a stock sale even if the stocks price dips only slightly below the trigger price before quickly recovering.

In summary, a stop-loss order is a risk-management tool that automatically sells a security once it reaches a certain price, either a percentage or a dollar amount below the current market price. It is designed to limit losses in case the securitys price drops below that price level. While stop-loss orders can be useful, its important to realize they dont always work as intended, and they can also lock in avoidable losses.