What Is a Stop-Loss Order and How Do You Use One?

It's one of the simplest risk-management tools available to everyday investors, and once it's set up, it works in the background without you needing to watch the market all day.

This guide covers what a stop-loss order is, how it works, the different types available, and how to set one up on Selfwealth. It's general information only — see the disclaimer at the end before acting on anything here.

What is a stop-loss order?

A stop-loss order is a conditional instruction to sell a share once its price falls to a level you set in advance, known as the trigger price. Instead of watching the market and manually selling if a stock drops, you set the trigger once — and the order sits quietly in the background until the market reaches that price, or until the order's expiry passes (you choose the expiry when you place it)

Stop-loss orders are one of the conditional order types available to everyday ASX investors. On Selfwealth, a stop-loss can fill either at market or at a limit price once triggered — the limit option is what's often called a stop-limit order. Separately, there's also the good-till-date (GTD) orders, which isn't a conditional order but an expiry setting: it keeps a standard buy or sell order open until a date you choose (up to six months out on the ASX) rather than expiring at the end of the trading day.

Types of stop-loss orders

Standard stop-loss (market order)

The most common version. Once the trigger price is hit, the order converts into a market order and sells at the next available price. It guarantees execution, not price.

Stop-limit order

A stop-limit combines a trigger price with a limit price. Once triggered, it becomes a limit order rather than a market order, so it will only sell at your limit price or better. This protects you from selling too low in a crash — but if the price falls straight through your limit, the order may not fill at all.

How to choose a stop-loss percentage

There's no single "correct" percentage — it depends on:

• Volatility — a large, stable stock might reasonably use a tighter stop (say 8–10%), while a smaller or more volatile stock may need more room (15–20%) so normal price swings don't trigger an unnecessary sale.

• Time horizon — short-term traders often use tighter stops than long-term investors, who may be willing to ride out bigger swings.

• Conviction — the more confident you are in the long-term case for a holding, the more tolerance you might have for short-term volatility.

A stop set too tight risks being triggered by ordinary market noise; one set too wide may not protect you when it matters. Selfwealth Premium's stock reports and live pricing can help inform how volatile a stock has historically been before you decide — but the right level ultimately depends on your own objectives and risk tolerance, or a licensed adviser's guidance.

How to place a stop-loss order on Selfwealth

On Selfwealth, placing a stop-loss order for ASX shares works the same way as placing a standard sell order — you select "stop-loss" as the order type, enter your trigger price, and choose whether it fills at market or at a limit price once triggered. For US shares, Selfwealth offers stop-limit sell orders (day-only, placed during the regular trading session).

Because stop-loss and stop-limit orders use the same order book as any other trade, they're charged Selfwealth's standard flat brokerage of $9.50 per filled ASX order — there's no extra fee for using a conditional order type. For the exact click-by-click steps, see Selfwealth's help centre guide on placing a stop-loss order.

Don't have a Selfwealth account yet? You can sign up to Selfwealth and start trading ASX, US and Hong Kong shares with flat-fee brokerage and no account-keeping fees.

Benefits of using a stop-loss order

• Protects capital by capping how much you can lose on a position before you need to step in manually.

• Removes emotion from the decision — the order executes on the plan you set when you were thinking clearly, not in the heat of a falling market.

• Frees up your time — you don't need to watch every price tick to manage downside risk.

Risks and limitations to know

A stop-loss order is a useful tool, not a guarantee. Keep in mind:

• It doesn't guarantee an exact price. Once triggered, a standard stop-loss becomes a market order and fills at the best available price, which can be materially below your trigger in a sharp fall.

• Gaps can bypass your trigger entirely. If a stock opens well below your trigger price (say, after bad news overnight), your order will fill at the new lower price, not your original trigger.

• Short-term volatility can trigger a sale you didn't want. A stop set too close to the current price can be hit by normal daily noise, locking in a loss on a stock that later recovers.

• It's not a substitute for a strategy. A stop-loss manages downside on individual positions — it doesn't replace diversification, position sizing, or a clear view of why you hold something in the first place.

Investing carries risk, including loss of capital, and a stop-loss order reduces but does not eliminate that risk.

Stop-loss orders vs other conditional order types

Stop-loss and stop-limit orders both manage downside risk on shares you already hold. They differ from good-till-date (GTD) orders, which simply let a standard buy or sell order stay open for a set number of days rather than expiring at the end of the trading day.

They also sit at the opposite end of the strategy spectrum from tools like Auto-Invest, which is designed for investors dollar-cost averaging into the market on a schedule, rather than managing downside on an existing position.

FAQ

Does a stop-loss order guarantee I'll sell at my exact trigger price? No. Once triggered, a standard stop-loss becomes a market order and sells at the next available price, which can differ from your trigger price, especially in a fast-moving market.

Does it cost extra to place a stop-loss order on Selfwealth? No. Stop-loss and stop-limit orders on ASX shares are charged Selfwealth's standard flat brokerage of $9.50 per filled order — the same as any other trade.

What's the difference between a stop-loss and a stop-limit order? A stop-loss becomes a market order once triggered, so it prioritises getting the sale done. A stop-limit becomes a limit order once triggered, so it prioritises price — but may not fill at all if the market moves past your limit.

Can I use a stop-loss order on US shares as well as ASX shares? For US shares, Selfwealth offers stop-limit sell orders with day-only expiry. On ASX shares you place a stop-loss order and choose how it fills once triggered — at the market price, or at a limit price you set (choosing the limit option gives you stop-limit behaviour).

What percentage should I set my stop-loss at? It depends on the stock's volatility, your time horizon and your conviction in the holding. Many investors use a range of roughly 10–15% below their purchase price, tightening it for more stable stocks and widening it for more volatile ones — but there's no one-size-fits-all figure.

How long does a stop-loss order stay active? This depends on the expiry you choose when placing the order. Check Selfwealth's help centre for current expiry options, as these can vary by order and market.