Lesson 4 of 11
What Is a Stop Order?
A stop order is an order that becomes active when the market reaches a specified trigger price.
Unlike a limit order, a stop entry is commonly used when a trader wants to enter after the market moves beyond a particular level.
Buy stop
A buy stop is generally placed above the current market price.
Suppose EUR/USD is trading at:
1.1500
A trader believes that a move above 1.1550 could signal further upward momentum.
The trader places:
Buy Stop at 1.1550
If the relevant market price reaches the trigger level, the order becomes active.
Sell stop
A sell stop is generally placed below the current market price.
Suppose an index is trading at:
20,000
A trader expects further weakness if the market falls below:
19,900
The trader places:
Sell Stop at 19,900
Stop order vs limit order
The difference is important.
Limit order
Usually seeks a better price than the current market.
Stop order
Usually activates after the market has moved further in a specified direction.
For example:
Current price: 100
Buy Limit: 95
Buy Stop: 105
Is the stop price guaranteed?
A stop price is generally a trigger, not necessarily a guaranteed execution price.
Once triggered, the order may execute according to available market prices.
During rapid price movements or market gaps, the actual execution price can differ from the stop level.
Lesson summary
Stop orders activate when a trigger price is reached.
Buy stops are generally placed above the current market.
Sell stops are generally placed below the current market.
Stop and limit orders serve different purposes.
A stop trigger does not necessarily guarantee the final execution price.