Definition
A stop order, also known as a stop-loss order, is designed to limit losses or protect profits. It remains dormant until the stock reaches the stop price, at which point it converts to a market order. Buy stop orders are placed above the current market price and trigger when the price rises to that level. Sell stop orders (stop-losses) are placed below the current price and trigger when the price falls. Once triggered, the order executes at the next available market price, which may differ from the stop price.
Example
You buy Tesla at $200 and place a stop-loss order at $180. If Tesla drops to $180, your stop order triggers and sells at the next available price, limiting your loss to approximately 10%.
FAQ
What is Stop Order?
An order that becomes a market order once a specified trigger price is reached.
Why is Stop Order important?
Stop Order helps investors evaluate trading mechanics and make more informed decisions.