Stop Order
You can explore the materials without registering, but with a free account you can track your progress and earn rewards along the way. By the end of your learning journey, you can have the knowledge you need to become a profitable Trader!
Join →What Is a Stop Order?
A stop order is an order that becomes active for execution when the market reaches a specified stop price. Once triggered, the resulting order may be handled according to the order type defined by the broker or trading venue, commonly as a market order or, in some implementations, as a stop-limit order.
Why Do We Use Stop Orders?
A stop order can be used to enter a position after price reaches a chosen level or to exit a position when price moves through a predefined level. The important point is that the stop price is a trigger, not necessarily the final execution price.
Example
If a stock trades at 100 and we place a buy stop at 105, the order is intended to activate if the market reaches the trigger level. The actual execution price can be different from 105, particularly when the market moves quickly.
Key Terms
Stop order, stop price, trigger, execution, stop-limit order.
Knowledge Check
- What activates a stop order?
- Is the stop price necessarily the execution price?
- Why can fast markets create a difference between trigger and execution?