Stop order
Also known as: stop-loss order
A stop order is an order to buy or sell a security that activates only when the market hits a specified trigger price, then executes as a market order. Investors use stop orders to limit losses or protect gains on existing positions.
A stop order is a dormant order that springs to life only when the market reaches a specified stop price (the trigger). Once triggered, it becomes a market order and fills at the next available price — which may be better or worse than the stop price itself.
Placement follows a strict pattern: buy stops are entered above the current market price, and sell stops below it. A common mnemonic is SLoBS and BLiSS — Sell Limits or Buy Stops go above the market; Buy Limits or Sell Stops go below. For example, an investor who bought stock at $50 that now trades at $80 might enter a sell stop at $75. If the stock falls to $75, the order triggers and sells at the next price, locking in most of the gain.
Sell stops protect long positions against a decline, while buy stops protect short sellers against a rising price (or let technical traders buy into an upside breakout). The trade-off is execution risk: because a triggered stop becomes a market order, a fast-moving or gapping market can fill it well past the stop price. A stop limit order addresses that by converting into a limit order instead — guaranteeing price but not execution.
The SIE, Series 7, and Series 66 exams all test order types heavily. Be ready to identify where buy and sell stops are placed relative to the market, what happens at the trigger, and how a stop order differs from a stop limit order.
Key takeaways
- A stop order activates at a specified stop price and then executes as a market order.
- Buy stops are placed above the current market; sell stops are placed below it (remember SLoBS and BLiSS).
- Sell stops protect long positions; buy stops protect short positions or capture upside breakouts.
- Execution price is not guaranteed — a triggered stop can fill away from the stop price in a fast market, unlike a stop limit order.