Definition
An order that sits waiting until price reaches a set level (the stop price), then becomes a market order.
The story
Say you own something trading at $50 and place a sell stop at $45. Nothing happens unless price trades down to $45; then it turns into a market order and sells at the next available price, which in a fast drop can be below $45. A stop-limit order works the same way but becomes a limit order instead, which caps the price but might not fill.
Why markets watch it
Stop orders are how traders automate an exit or an entry at a level they've chosen ahead of time.
Connects to
We explain why it moves markets. What you do with it is your call. Commentary and education only. Not financial advice. All terms