Read the Lines · Risk & Uncertainty
Stop-Loss Orders, Gaps
& Slippage.
A stop-loss order is designed to trigger an exit when price reaches a chosen level. It can reduce planned downside, but it cannot guarantee the exact exit price. Fast markets, thin liquidity and overnight gaps can produce fills materially worse than the stop level.
Quick answer
Can a stop loss guarantee your maximum loss?
No. A stop can define the price at which an order is triggered, but the market may not have enough liquidity at that exact price. If price gaps past the stop, the eventual fill can be worse than planned.
What is slippage?
Slippage is the difference between the price you expected and the price at which the trade actually executes. It can happen in normal markets and become much larger when liquidity disappears or price moves quickly.
What is gap risk?
Gap risk occurs when the next available trading price is materially different from the previous price. ASX announcements, trading halts and overnight news can all cause a stock to reopen far above or below its prior close.
If a stock reopens beneath a stop level, there may never have been an opportunity to exit at the planned price.
Why does liquidity matter?
In a deep market, many orders may be available near the current price. In a thin small-cap stock, the next meaningful buyer can sit much lower. The same stop mechanism can therefore create very different realised outcomes.
Key idea
A stop is part of risk management, not a force field.
A risk model needs to account for the possibility that execution may not match the geometry shown on a chart.
Keep learning
Next: how stops and targets work together.
Important information: This page provides general educational information about order and risk concepts. It does not provide personalised trading instructions or financial advice.
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