Stop Order

A stop order becomes a market order when the price reaches a specified level. A buy stop is placed above the current price — it triggers a buy when the market rises to that level. A sell stop is placed below — it triggers a sell when the market falls to that level. They're the opposite of limit orders in terms of price positioning.

Stop orders are commonly used in two scenarios: breakout trading and loss protection. For breakouts, a buy stop above resistance automatically enters you if the breakout occurs. For protection, a sell stop below your entry acts as a stop-loss if the market moves against your long position.

The risk with stop orders is that they execute as market orders once triggered. In fast-moving or gapping markets, the fill price can be significantly different from the stop level. This is why stop-loss orders don't provide absolute protection — in rare extreme events (like the 2015 Swiss Franc crisis), stops can be filled hundreds of pips away from their set levels.