What is stop order?
An instruction that stays dormant until the market reaches a trigger price, then submits a market or limit order.
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An instruction that stays dormant until the market reaches a trigger price, then submits a market or limit order.
Traders use it to cap a loss or to enter on a breakout. A stop that becomes a market order in a fast move can fill far from the trigger; see slippage and limit order.
The thing to hold onto is that a stop is not an order sitting on the book. It is an instruction held by the exchange that creates an order later, which is why it does not appear in the depth anyone else can see.
How it works
You set a trigger price and a resulting order type. Until the market touches the trigger, nothing exists on the order book and nothing is reserved beyond the balance the exchange holds for it. When the trigger is reached, the exchange submits the order you specified.
Two variants matter and they fail in opposite directions.
A stop-market becomes a market order and will fill, at whatever the book offers. In a fast move that can be far below the trigger.
A stop-limit becomes a limit order at a price you set, and will not fill worse than that price. If the market gaps straight through, nothing fills and the position you were trying to exit is still yours. See stop limit order.
Venues also differ on what triggers the stop. Some use the last traded price on that venue, some use a mark price or an index price built from several venues. That choice decides whether a brief wick on one exchange sets off your stop, and it is stated in the venue's own order-type documentation.
| Variant | Becomes | Fills? | Risk you accept |
|---|---|---|---|
| Stop-market | Market order | Effectively always | Price uncertainty in a fast move |
| Stop-limit | Limit order | Only at your price or better | May not fill at all |
Example
Illustrative figures. You hold a position at $100 and set a stop at $95. Bad news hits and the market trades from $96 to $88 in seconds, with almost nothing resting between. A stop-market triggered at $95 fills at $89, a loss of $11 rather than the $5 you planned. A stop-limit at $95 with a limit of $94 triggers, rests at $94, never fills because the market is at $88, and leaves you holding the position. Neither outcome is what "stop loss at $95" sounded like.
Why it matters when you buy
Order types are the main lever a buyer has over execution cost, and the venue's implementation decides what they actually do. The liquidity pages show how thin each market is, which is what determines how badly a stop-market can fill, and the guide on limit and market orders covers the basic choice.
Related terms
- stop limit order — the version that fixes a worst price
- take profit order — the same mechanism on the upside
- limit order — the resting order type
- market order — what a plain stop becomes
- slippage — the gap between trigger and fill
- trailing stop — a trigger that moves with the market
Questions
Does a stop order show in the order book?
No. It sits with the exchange until triggered, which is why stops do not add visible depth and why clusters of them can amplify a move once they fire together.
Which price triggers my stop?
Whichever the venue uses, and that varies. Last traded price, mark price, and index price behave differently in a volatile minute, and the venue documents which one applies.
Can I use a stop to buy?
Yes. A buy stop above the market is the usual way to enter on a breakout, and it carries the same fill uncertainty as a sell stop below the market.