What it is:
How it works (Example):
Securities may experience volatile price fluctuations that exacerbate their levels of risk. Traders and investors place hard stops on specific portfolio holdings in an effort to minimize losses.
For example, suppose Bob wishes to sell off his 100 shares of stock ABC if they reach $50 per share. Bob places a hard stop on these hundred shares by instructing his brokerage house to automatically sell all 100 shares if their price in the stock market falls to $50 per share.