What is Stop Order?
A stop order is an order that becomes a market order only after a specified price level (the stop price) has been reached, used to enter or exit positions at predetermined levels.
Stop Order Explained
Stop orders are the foundation of automated risk management. A sell stop order triggers when the price falls to the stop level, protecting against further losses. A buy stop order triggers when the price rises above the stop level, often used to enter breakouts or protect short positions.
Real-World Example
You own shares at $100 and set a sell stop at $95. As long as the price stays above $95, nothing happens. If it drops to $95, your stop order becomes a market order and sells your shares at the next available price.
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