What does a stop-loss order help limit?

A stop-loss order is designed primarily to limit an investor's potential losses on a security. When an investor places a stop-loss order, they specify a price at which their position will be automatically sold if the security's price falls to that level. This mechanism is particularly useful in volatile markets, where prices can fluctuate dramatically in a short period. By setting a stop-loss order, investors can effectively manage their risk and protect their capital by exiting a losing trade before the losses become too significant.

The other options focus on aspects that are not directly addressed by a stop-loss order. For instance, while potential gains may be limited if a position is sold prematurely, the primary intent of a stop-loss order is to avoid further downside. Similarly, the timing of trading decisions and the liquidity of an asset are unrelated to the specific function of a stop-loss order, which is solely concerned with minimizing losses.