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.