A stop loss is sell order placed with a stop price. This means that the order will not be executed until the price of the stock drops to or through your stop price. For instance, if you own 100 shares of GOOG that you paid $400 a share for. You would like to protect your losses so you place a stop loss. You enter in an order to sell 100 shares of GOOG at a stop price of $300. This means that you will have an open order to sell GOOG if and only if the price of GOOG drops hits your stop.  See Trailing Stop for another type of stop loss.

Pros: You can protect your profits and protect your investment by automatically selling you out when the stock trades at or below a certain price.

Cons: You can get stopped out due to volatility even when the stock closes up on the day.