Stop Order

AAA

DEFINITION of 'Stop Order'

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."

INVESTOPEDIA EXPLAINS '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.

VIDEO

Loading the player...
RELATED TERMS
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches ...
  2. Limit Order

    An order placed with a brokerage to buy or sell a set number ...
  3. Day Order

    An order to buy or sell a security that automatically expires ...
  4. Order

    An investor's instructions to a broker or brokerage firm to purchase ...
  5. Resistance (Resistance Level)

    A chart point or range that caps an increase in the level of ...
  6. Buy Stop Order

    An order to buy a security which is entered at a price above ...
RELATED FAQS
  1. Why are forex Pivot Points important for traders and analysts?

    A pivot point is used to reflect a change in market sentiment. Technical analysts and traders use pivot points to determine ... Read Full Answer >>
  2. What are the rules for placing stop and limit orders in forex?

    The high amounts of leverage commonly found in the forex market can offer investors the potential to make big gains, but ... Read Full Answer >>
  3. What happens to a stop order after a stock splits?

    A stop order, commonly referred to as a stop-loss order, is an order placed with a broker to sell a security when it reaches ... Read Full Answer >>
  4. 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 Full Answer >>
  5. How do I buy an over-the-counter stock?

    The process of purchasing over-the-counter (OTC) stocks is different than purchasing stock from companies on the NYSE and ... Read Full Answer >>
  6. What is a virtual trailing stop order (VTSO)?

    A virtual trailing stop order (VTSO), is a stop order that adjusts as the price of a security moves. The stop price is placed ... Read Full Answer >>
  7. How does a stop-loss order work, and what price is used to trigger the order?

    A stop-loss order, or stop order, is a type of advanced trade order that can be placed with most brokerage houses. The order ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Trailing-Stop Techniques

    The important decision to exit a position must be based on more than emotion if you want to be a disciplined trader.
  2. Options & Futures

    Trailing-Stop/Stop-Loss Combo Leads To Winning Trades

    Combine trailing stops with stop-loss orders to reduce risk and protect portfolio value.
  3. Forex Education

    Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  4. Options & Futures

    Forget The Stop, You've Got Options

    Using options instead of stop-loss orders adds finesse and control in limiting losses.
  5. Forex Education

    Trading The MACD Divergence

    Currency traders can use this method to avoid stop-order triggers before the real reversal.
  6. Forex Education

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
  7. Options & Futures

    Stop Hunting With The Big Forex Players

    Learn to bank short-term profits by placing stops away from the crowd.
  8. Economics

    Is The Stock Market Rigged?

    Many would-be, first-time investors in the stock market do not believe it is a fair playing field.
  9. Active Trading Fundamentals

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  10. Active Trading Fundamentals

    Limiting Losses

    It is impossible to avoid them completely, but there is a systematic method you can use to control them.

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center