What is the purpose of a stop-loss order in forex trading?

A stop-loss order is a risk management tool used in forex trading to protect traders from significant losses in their positions. When a trader sets a stop-loss order, they are specifying a predetermined price at which they are willing to sell a currency to prevent further losses if the market moves against them. This automated order helps to limit the financial impact of unfavorable price movements.

By executing the order when the market reaches the specified price, the trader can exit their position before the losses become too severe. This is particularly important in the volatile forex market, where price fluctuations can be rapid and substantial. Hence, the purpose of a stop-loss order is fundamentally about preserving capital and managing risk effectively.

In contrast to the other options, which either describe actions that do not focus on limiting risk or involve different trading intentions, the stop-loss order's primary function is unequivocally focused on minimizing potential losses during trading.