Soft Stops act as early warning systems in risk management. When a portfolio hits this threshold — often based on drawdown, volatility, or deviation from expected performance — the manager is expected to reassess strategy behavior. Unlike a Hard Stop, a Soft Stop allows the trader to justify continued activity, especially if market conditions are anomalous. It provides discretion while enforcing discipline, and is common in quantitative, macro, and multi-strategy funds. Soft Stops are typically outlined in the mandate and reviewed by risk committees or allocators.