When stop-losses don't stop losses

On Oct. 10, 2025, global markets plunged after United States (US) President Donald Trump announced he would impose an additional 100-percent tariff on goods from China. The reaction was immediate and violent, particularly in the cryptocurrency market, which suffered its largest liquidation event ever. Around $19 billion in positions were wiped out within hours. Prices rebounded just as quickly, but for many traders, the damage was done. A friend of mine who trades these markets said that people in his trading group lost vast sums of money during the fiasco, particularly because of a combination of leverage and stop-losses.

- KEITH LIM

According to Investopedia, a stop-loss is an order that tells your broker to automatically sell a security once it hits a certain price. For example, let's say you buy a cryptocurrency at $20 and set a stop-loss at $15. When the price drops to $15, your position will automatically be sold at the prevailing market price. In theory, this limits your downside to $5 per unit.

However, when prices collapse too fast, stop-losses can execute at prices far below your intended threshold. This is what happened on Oct. 10. The market didn't gradually slide from $20 to $19 to $18; it fell straight through, with only a few traders able to activate their stop-losses at higher prices due to the lack of buyers in the market. Someone who placed a stop-loss at $15 could have found their position sold at $5 because prices immediately crashed to $5 before their stop-loss could be filled. And, to add salt to the wound, after being completely sold out at the bottom, that same person might have watched the market recover to $12.