Orders & execution
Stop order
Also called Stop loss
A dormant order that becomes a market order once the price passes a level you set.
How it works
A stop is not active in the market until triggered. Once the trigger price trades, the stop converts to a market order and executes at whatever is available.
It is a discipline device: a decision made calmly in advance, executed automatically at the moment you would be least able to make it.
Where it misleads people
A stop guarantees a trigger, never a price. If the market gaps below your stop overnight, you sell at the open, which can be far lower. Stops do not protect against gaps, and gaps are where the large losses live.
Related terms
- Stop-limit orderA stop that becomes a limit order rather than a market order, capping how bad a fill you accept.
- GapA jump between one session’s close and the next session’s open, with no trading in between.
- Trailing stopA stop that follows the price up, staying a fixed distance below the highest level reached.
- Market orderAn instruction to trade immediately at the best price currently available, whatever that is.
- Flash crashA very sudden, very deep price fall that reverses almost as quickly.
Mentioned in
More in Orders & execution
- Market timing
- Time in the market
- Limit order
- Day order
- Good-till-cancelled
- Dollar-cost averaging
- Fractional shares
- Fill-or-kill
All 12 Orders & execution terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.