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What is a 'Stop Order'

A stop order is an order to buy or sell a security when its price surpasses a particular point, thus ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order.

Also referred to as a "stop" and/or "stop-loss order."

BREAKING DOWN 'Stop Order'

Investors commonly use a stop order before leaving for holidays or entering a situation where they are unable to monitor their portfolio for an extended period.

Stops are not a 100% guarantee of getting the desired entry/exit points. For instance, if a stock gaps down, the trader's stop order will be triggered (or filled) at a price significantly lower than expected.

Traders who use technical analysis will place stop orders below major moving averages, trendlines, swing highs, swing lows or other key support or resistance levels.

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RELATED FAQS
  1. What is the difference between a stop order and a stop limit order?

    Learn the differences between a stop order and a stop limit order. Traders use these as stop losses and regular investors ... Read Answer >>
  2. What is the difference between a buy limit and a stop order?

    Learn the difference between buy limit orders and stop orders, including stop loss orders, and understand the risks of the ... Read Answer >>
  3. What's the difference between a stop and a limit order?

    Different types of orders allow you to be more specific about how you'd like your broker to fulfill your trades. When you ... Read Answer >>
  4. Are stop orders only used for stocks?

    Learn about sell-stop and buy-stop orders, when and how to use stop orders and what other securities stop orders could be ... Read Answer >>
  5. What is the difference between a stop and a market order?

    Learn about market orders and stop orders, how they are used and executed, and the main difference between stop orders and ... Read Answer >>
  6. What does "gather in the stops" mean?

    "Gather in the stops" is a trading strategy used by investors to trigger stop orders already in place so that the price of ... Read Answer >>
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