What is a stop order?

A stop order triggers when price reaches a specified stop level. Once triggered, it typically becomes a market order and executes at the best available price.

What is the difference between a stop order and a limit order?

A stop order triggers at a price level and prioritises execution once triggered (often as a market order). A limit order prioritises price control and only executes at a specified price or better.

Can a stop loss be filled at a worse price than the stop level?

Yes. In fast markets or gaps, a stop loss can experience slippage because it becomes a market order once triggered and fills at the best available price.

Trading Basics

Order Types

Stop Order

A stop order is an order that activates (triggers) when price reaches a specified stop level. Once triggered, it usually becomes a market order and executes at the best available price.

In plain English: a stop order says, "If price reaches this level, get me in (or out) quickly."

Example
Risks: slippage and gaps
FAQ

Stop Buy vs Stop Sell

Stop Buy

Placed above the current price
Triggers if price rises to the stop level
Used to enter a long position on a breakout, or to exit a short position

Stop Sell

Placed below the current price
Triggers if price falls to the stop level
Used to enter a short position on a breakdown, or to exit a long position

Many platforms call these "Buy Stop" and "Sell Stop".

Stop Loss vs Entry Stop

Stop orders are used for two main purposes:

Stop loss (risk control): exits a position if price moves against you beyond your tolerance
Entry stop (breakout entry): enters a trade only if price proves momentum by reaching a level

Practical rule

Stop losses protect you from "hoping". Entry stops protect you from entering too early. Both prioritise execution over price precision.

Trigger Price vs Fill Price

A common beginner confusion is thinking the stop level is the guaranteed fill price. It is not.

Trigger price: the price level that activates the order
Fill price: the actual price you receive when the order executes after triggering

In fast markets, the fill price can be worse than the trigger price due to slippage.

Example: Stop Loss on a Long Trade

You buy GBP/USD at 1.2700 and place a stop loss at 1.2650.

If price falls to 1.2650, your stop triggers
Your stop becomes a market sell order and fills at the best available bid
If the market is calm, you might fill near 1.2650
If the market is fast, you might fill at 1.2642 (slippage)

That difference is not "wrong" — it reflects real liquidity and speed in the market at that moment.

Key Risks: Slippage and Gaps

Slippage: once triggered, stops can fill at a worse price in volatile markets
Gaps: if price jumps over your stop level (overnight, weekend, sudden news), your stop triggers and fills at the next available price
Stop clustering: many traders place stops around obvious levels, which can create fast moves when those levels break

Risk reality

Stop losses reduce risk, but they do not guarantee an exact exit price. If you need a defined worst-case price, you may need a stop-limit order (but that introduces "no fill" risk).

Common Misconceptions

"My stop loss guarantees I'll exit at that exact price."
A standard stop triggers at the level but fills at the best available price after triggering.
"Stops are only for beginners."
Professionals use stops and risk controls constantly. The difference is they size positions and place stops based on liquidity and volatility.
"If my stop slipped, the broker must be cheating."
Slippage is common during volatility and low liquidity. The best test is to observe whether fills are fair over time, not just on one event.

✅ Quick Checkpoint

Try answering before expanding the model answers.

1) What happens when a stop order triggers?

It activates and typically becomes a market order, executing at the best available price.

2) What is the difference between a trigger price and a fill price?

The trigger price activates the order; the fill price is the actual executed price, which can differ due to slippage.

3) What is the main trade-off of using stop orders?

You gain execution certainty after triggering, but you give up precise price control (slippage and gaps are possible).

Frequently Asked Questions

Is a stop order the same as a stop loss?

A stop loss is a common use of a stop order. Stop orders can also be used as entry orders (buy stop / sell stop) for breakouts.

What is the difference between a stop order and a stop-limit order?

A stop order triggers and then executes like a market order. A stop-limit order triggers and then places a limit order, which controls price but may not fill in fast markets.

Why do stops sometimes slip more during news?

Liquidity can disappear and prices can jump quickly. When the stop triggers, it competes for whatever liquidity exists at that moment.

Where should I place a stop loss?

There is no universal answer. Stops should reflect your strategy, volatility, and where your trade idea is invalidated — plus you should size the position so the worst-case loss is acceptable even with some slippage.

Summary

A stop order activates when price reaches a level and usually becomes a market order. It is widely used for stop losses and breakout entries because it prioritises execution once triggered.

The key risk is that stops do not guarantee an exact fill price. In volatile markets or gaps, you can see slippage.