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Note that a stop order is normally not implemented by the exchange (like a limit order), but rather by the broker for the order tracking the price in the market, and executing a market order when the stop price is reached or passed.

A stop order is essentially used the opposite of a limit order. When you place a stop order, you hope it never will be triggered, but you use it to limit your losses if the price moves the opposite of what you want, and end up in an area where the price is wrong for you. When you (as a trader) place a limit order, you ask to have your transaction handled if the price reaches an area where you can get an interesting price.

Stop order. (Finance)

An order that aims to limit losses by fixing a figure at which purchases shall be sold or sales bought in, as where stock is bought at 100 and the broker is directed to sell if the market price drops to 98.


© Webster 1913.

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