A stop loss is a risk management tool designed to limit potential losses in the financial markets. It is a pre-set order that automatically closes an open position when the price reaches a specified level.

Example: if you buy the EUR/USD currency pair at 1.2000, you might set a stop loss at 1.1950, which is 50 pips below your entry price.

If the price drops by 50 pips to 1.1950, your position will automatically close, preventing further losses. This tool helps protect your trading capital and manage risk effectively.