Stop Order

A stop order, also known as a stop-loss order, is an instruction to buy or sell an asset once its price reaches a specified stop price. Once the stop price is hit, the order converts into a market order and is executed at the next available market price.

These orders are primarily used by traders to limit potential losses or protect profits on open positions. For instance, a trader holding a long position might set a sell stop order below the current market price to exit if the price drops significantly.

Conversely, a stop-buy order can be used to enter a position if the price breaks out above a certain resistance level. It is important to note that a stop order does not guarantee a specific execution price, as the market might move rapidly past the stop price.