A predetermined price level at which a losing trade is automatically closed to limit further losses. In futures prop trading, stop-losses are typically set as market orders, meaning they execute at the next available price once the stop level is hit
Why It Matters
- 1Stop-losses are non-negotiable in prop trading.
- 2Without them, a single runaway trade can breach your daily loss limit or max drawdown and terminate your account instantly.
- 3Many prop firms don't require stop-losses on every trade, but experienced prop traders treat them as mandatory.
- 4In volatile markets like futures, even a brief price spike can move hundreds of dollars per contract in seconds — a stop-loss is your last line of defense.
Example
- 1You enter a long position on ES futures at 4,500 with a 10-point stop-loss at 4,490. Each point is worth $50 per contract, so your maximum risk is $500 per contract.
- 2If you're trading 3 contracts, your total risk on the trade is $1,500. If the market drops to 4,490, your position automatically closes at approximately that level, preventing further losses.
Common Mistakes
- ✖Setting stop-losses too tight, causing frequent stop-outs on normal price fluctuations
- ✖Moving stop-losses further away when a trade goes against you instead of accepting the loss
- ✖Not using stop-losses at all and relying on mental stop levels that are easy to ignore