Stop order
A stop order is an instruction that stays dormant until price reaches a specified trigger level, then becomes a market order.
The trigger is the only thing the stop guarantees. Once price reaches the stop level the order fills at the best available price beyond it, which in a fast market can be several pips past the trigger. A stop is used both to enter a position on a breakout and to exit one as a stop-loss.
This page covers the mechanic; it is not trading advice.
A trigger, then a market order
A stop order does nothing until price reaches its trigger, then it fires as a Market order. A buy stop on EUR/USD at 1.0850 sits idle while the market is below 1.0850; the moment the ask touches 1.0850 the stop converts to a market order and fills at the best available price from there. A sell stop at 1.0800 fires when the bid falls to 1.0800. The stop secures the trigger, not the fill price beyond it.
This makes a stop the opposite of a Limit order in placement. A buy limit sits below the market to enter on a pullback to a better price; a buy stop sits above the market to enter once price breaks through a level. The same instrument and the same price can be either a stop or a limit depending on the thesis: a limit expects price to come back to a level, a stop expects price to break past one.
Stop order and stop-loss are often used as if they were the same thing, and they overlap without being identical. A stop order is an order type — a trigger that becomes a market order, usable to enter or to exit. A Stop-loss is a use of that order type: a sell stop placed below a long position to cap its loss. Every stop-loss is a stop order, but a stop order is not always a stop-loss, because a buy stop above the market can be a breakout entry, or the stop-loss on a short position, rather than a loss limit on a long. The order type is the tool; the stop-loss is one job it does.
Gap risk and the two jobs a stop does
Because a stop becomes a market order, it carries the same Slippage exposure as one, concentrated at the worst moment. A long EUR/USD position protected by a sell stop at 1.0820 is closed when the bid reaches 1.0820, but if the market gaps from 1.0825 straight to 1.0810, skipping 1.0820, the stop fills at 1.0810, ten pips below its level. The stop guaranteed the exit, not the price of the exit.
Gap risk is largest where price moves without trading every level in between: the weekend gap from Friday close to Monday open, the seconds around a data release, and illiquid instruments. A Stop-loss held through a weekend can fill far beyond its level on a Monday gap, which is the mechanism behind losses that exceed the distance a trader thought they had set. Guaranteed-stop products, where a broker offers them, cap the fill at the exact level through a gap for a fee.
Stop-entry versus stop-loss
The two jobs of a stop order are worth separating. As a stop-entry, a buy stop above resistance or a sell stop below support enters a position the moment price confirms a breakout, accepting slippage in exchange for not missing the move. As a Stop-loss, a stop on the far side of an open position closes it when the trade is wrong, capping the loss at the cost of a possible gap-driven overshoot. Same mechanism, opposite intent: one opens risk on a breakout, the other closes it on a reversal.
A stop-limit order is the variation that adds a price cap: it triggers like a stop but then places a Limit order rather than a market order, so it will not fill worse than a chosen price. The protection against slippage comes with the limit's non-fill risk — if price gaps past the limit, the order sits unfilled and the position is neither entered nor closed, which on a protective stop is the dangerous case.
Trailing stops
A trailing stop is a stop order whose trigger moves with the position. Set a fixed distance behind the price, say 40 pips, and as a long trade gains the stop ratchets up to stay 40 pips below the high, never moving back down. It locks in progress without a fixed target, converting an open profit into a protected one if the market reverses. It is still a stop order underneath, so it becomes a market order when hit and carries the same gap and Slippage exposure as any stop.
Order typesHow the market, limit, stop, and stop-limit instructions compare, and when each is used.Related terms
Related articles
Common questions
What is the difference between a stop order and a stop-loss?
A stop order is an order type: a trigger level that becomes a market order once reached, and it can be used to enter a position or to exit one. A stop-loss is one specific use of a stop order — placed on the far side of an open position to close it and cap the loss. Every stop-loss is a stop order, but a stop order is not always a stop-loss: a buy stop set above the market to enter on a breakout is a stop order doing the opposite job, opening risk rather than closing it.
Can a stop order fill at a worse price than its trigger?
Yes. Once the trigger is reached the stop becomes a market order, so it fills at the best available price beyond the trigger, which in a fast market is several pips through the level. If price gaps past the trigger without trading at it — over a weekend or around a release — the fill can be well beyond the stop. The stop guarantees that it fires, not the price it fires at, which is why a held stop-loss can close further from its level than the trader intended.
What is a stop-limit order?
A stop-limit order triggers like a stop but then places a limit order instead of a market order, with a separate limit price. It caps the fill: the order will not execute worse than the limit. The trade-off is that if price gaps past the limit, the order does not fill at all, so the position is neither opened nor closed. On a protective stop that non-fill is the dangerous case, because the position stays open while the market runs against it.
What is a trailing stop?
A trailing stop is a stop order set a fixed distance behind the market that moves in the trade's favour and never against it. On a long position a 40-pip trailing stop sits 40 pips below the highest price reached and ratchets up as the price rises, so a reversal closes the trade while preserving most of the gain. It remains a stop order, so when triggered it fills as a market order and can slip beyond its level in a fast market.