The central idea is that stop-loss orders contribute to large, rapid, self-reinforcing price
moves, or “price cascades,” as follows: a change in the exchange rate from any source triggers
the execution of stop-loss orders, which propagates the initial exchange rate change, thereby
triggering the execution of more stop-loss orders, etc. Such a price cascade would be cut short by
stabilizing speculation if arbitrage were unlimited and if stop-loss orders were public knowledge.
However, the existence of individual stop-loss orders is generally known only to the agents
placing them and to the dealing bank monitoring them.