Why isn't my stop-loss triggered?

A stop loss order is a type of trade instruction that automatically sells or buys an asset once it reaches a specified price, aiming to limit an investor's downside risk. However, the effectiveness of this strategy can vary depending on market conditions.

For example, let's consider a scenario where a stock is trading at 95, and a trader has set a stop loss limit at 99. Ideally, if the stock price drops below 99, the stop loss order would execute, protecting the trader from further losses.

But, what happens when unforeseen circumstances occur? Suppose a piece of sudden news about the company is released, causing a sharp surge in the stock price, taking it to 105. In this case, despite the initial intention to limit losses, the stop loss order remains inactive.

The reason behind this is that the stop loss order is designed to trigger only when the specified price is hit in the market. If the price movement is so rapid that it skips over the stop loss level, the order will not execute.

Trading in the financial markets can be a thrilling yet unpredictable experience, especially when it comes to managing risks. One tool that traders often utilize to mitigate potential losses is the stop loss order.