What is a cut-loss order in trading?

A cut-loss order is specifically an instruction to sell a security when its price falls to a predetermined level. This type of order is used by traders and investors as a risk management strategy to limit potential losses on an investment. By setting a cut-loss order, an investor can automatically exit a position before losses grow larger, thus providing a safeguard against significant declines in the price of the security.

Implementing a cut-loss order is crucial for maintaining a disciplined approach in trading, as it helps mitigate emotional decision-making during volatile market conditions. It is particularly important in markets that can quickly turn against an investor's position.

The other options deal with different aspects of trading strategies or investment behavior, but they do not accurately define a cut-loss order. For instance, the instruction to buy a security at a specific price level pertains more to a buy limit order, while maximizing profits from a sale and retaining a security indefinitely relate to investment strategies focused on longer-term positions rather than protective measures against loss.