stop order
An order that becomes a market order once the price reaches a trigger level, often used to exit a losing trade.
A stop order is an instruction that becomes a market order when the price reaches a chosen trigger. It can be used to enter or exit a position; it does not set a guaranteed execution price.
After the trigger, the order seeks the best available prices. If the market moves quickly or opens beyond the trigger, the fill can be worse than expected. The trigger is a condition for sending the order, not a promise about the final price.
A stop order can help make an exit rule concrete, but it cannot prevent every loss or predict where a price will go.
Example
Nora holds 10 Bluefin Energy shares bought at $25 each. She sets a sell stop trigger at $22. If the market reaches $22, her order becomes a market sell order.
If it fills at $22, proceeds are 10 × $22 = $220, compared with the $250 purchase cost: a $30 loss before fees. If the price instead gaps to $20 and fills there, proceeds are $200 and the loss is $50. The trigger did not guarantee a $22 exit.
Common mistakes
- Assuming the trigger price is the execution price.
- Forgetting that a gap or fast move can produce a larger loss.
- Moving a trigger without considering how that changes the planned risk.
- Most people who trade lose money.
Learn it in the course
- Order types: market, limit, stop · Choose how you enter and leave: right now at any price, only at your price, or when a level breaks. See what each order does in a fast drop, with real fill prices.
- Support, resistance and breakouts · Mark the prices where the market turned before, and see why a breakout can be real or a trap, and what a level can and cannot tell you.