A predetermined price level at which a losing trade is automatically closed to limit losses. Essential for risk management in prop trading.
Stop losses serve two functions in prop trading: they limit individual trade losses and they protect against drawdown breaches. Your stop loss distance directly determines your position size — wider stops require smaller positions to maintain the same dollar risk. A 50-pip stop on EUR/USD at 1% risk on $100K account = 2.0 lots. A 25-pip stop at the same risk = 4.0 lots. Never move a stop loss further away from entry to avoid being stopped out.