What is a Stop Order?

A stop order is an order placed to sell a stock below the current market price or to buy a stock above the current market price. Once the market hits your stop price, your platform will activate the stop order which will be sent to the exchange as a market order to be executed at the best price available in the market at that time.

Like using a market order, the advantage of placing a stop order is that you are pretty much guaranteed to be filled on your trade. The disadvantage is that you do not know the price that you will be filled at until after the order is filled by your broker. For traders who prefer price certainty as most do, most platforms also offer what is referred to as a stop/limit order. The stop/limit order works in a similar manner to the stop order in that it is an order you place to buy a stock at a price that is above the current market price, or an order to sell stock at a price that is below the current market price. The difference between the two orders is that a stop/limit order turns into a limit order once the stop price is hit, meaning that the trade will only be executed at the price you specified in the order or better. This is in contrast to the straight stop order, which will be executed at the best available price in the market, which can be a worse price than the price at which the stop order was placed.