CISI Professional Practice Exam 2025 – Complete Prep Guide

A stop-loss order is a tool used by investors to minimize losses on a security position. When an investor places a stop-loss order, they set a specific price at which they are willing to sell a security if it begins to decline in value. This order is designed to limit potential losses in a volatile or adverse market, providing a safety net that automatically triggers the sale of the security once it hits the predetermined price.

By implementing a stop-loss order, an investor can effectively manage their risk and protect their capital from further declines in value. This strategic approach allows investors to exit a losing position without the need for constant monitoring of market prices, ensuring that they do not suffer more significant losses.

In contrast, other options relate to different investment strategies. While ensuring profits and maintaining capital are important, they do not accurately describe the primary purpose of a stop-loss order, which is specifically focused on loss minimization. Additionally, buying a security at a certain price pertains to different types of orders, such as limit orders, and does not align with the objectives of a stop-loss order.