Stop Loss

A safety net that automatically sells your position if the price drops too much.

#Plain-English Definition

A Stop Loss is a pre-set instruction to your broker or exchange: "If the price of my shares falls to $X, sell them immediately."

It's designed to prevent a bad trade from becoming a disastrous one. You accept a small, controlled loss to avoid a total wipeout.

#Example

1. You buy "Yes" shares on a candidate at $0.60.
2. You set a Stop Loss at $0.50.
3. Bad news comes out, and the price starts crashing.
4. As soon as the price hits $0.50, your Stop Loss triggers and becomes a Market Order to sell.
5. You exit at roughly $0.50, losing $0.10 per share.
6. The price continues to crash to $0.10. You saved yourself $0.40 per share.

#Nuances in Prediction Markets

• Not always available: Many prediction market platforms (especially AMM-based ones) do not have native Stop Loss functionality yet. You often have to monitor prices manually.
• Gap Risk: In fast-moving markets (like election night), the price might jump from $0.50 directly to $0.40. Your Stop Loss at $0.50 would trigger, but you might get filled at $0.40 (slippage).

#Key Takeaways

• Stop Losses automate discipline. They force you to stick to your risk management plan.
• "Plan the trade, trade the plan."
• Be aware that in low-liquidity markets, stop losses can sometimes trigger accidentally due to temporary volatility.