What is a Stop Order?
Example

What is a Stop Order?
The stop order is a common order type that is widely employed by investors to help preserve profits and limit losses on stock and option positions.
These order types are entered with a fixed stop price. Once the stop price is triggered, a market order is sent to the marketplace.
 
Beware!
The price you receive for the market order once the trigger method, the last, bid or ask is triggered may be dramatically different from the quote provided at the time you entered your order.   This may occur during times of above normal volume, low liquidity  or increasing volatility in the market place

Example

  


Why use a Stop Order?

XYZ is trading at $250.00. You are long 100 shares of the underlying and would like to be protected in case XYZ trades lower.

1) What to do?
You set a fixed lower sell stop price at $245. If XYZ trades at $245 or lower, the stop is triggered and a market order to sell is sent to the marketplace.

Enter The Order:Enter a sell stop order, Stop Price of $245.

2) What happens next?
XYZ rises to $262. The Sell Stop order is still $245.

3) When do I get filled?
XYZ does not go any higher and drops back down to $245. Your Sell Stop order is then elected (triggered) and a market order to sell 100 shares is sent to the marketplace.

Notes:

  1. Question:  What are the Trigger methods for Stop Orders?

    2. Equity orders:
    The trigger methods for stop orders are:
    1) Buy stop orders- The trigger method for a buy stop order is the last trade.
    2) Sell stop orders- The trigger method for a sell stop order is the last trade.