Stop Order

A stop order is an order to buy or sell a stock once the price of the stock reaches a specific price, known as the stop price. When the stock hits your stop price, the stop order becomes a market order. The market order is executed at the best price currently available. Investors often place stop loss orders to help minimize potential losses, in case the stock moves in the wrong direction.

Keep in mind, short-term market fluctuations in a stock’s price can trigger a stop order to turn into a market order. Also, not all stocks support market orders during extended hours. If the market is closed, the order will be queued for market open. Learn more by checking out Extended-Hours Trading.

Buy Stop Order

With a buy stop order, you can set a stop price above the current price of the stock. If the stock rises to your stop price, your buy stop order becomes a buy market order.

Example

MEOW is currently trading at $5 per share. You want to wait to purchase MEOW because you think it’ll fall to a lower price. You also think that if MEOW reaches $8, it may go higher. To help minimize your potential costs, you can set your stop price to $8.

  • If MEOW rises to $8 or higher, your buy stop order becomes a buy market order. Then, MEOW is purchased at the best price currently available.
  • If MEOW stays below $8, a market order isn’t triggered and no shares are purchased.

These examples are shown for illustrative purposes only. In general, understanding order types can help you manage risk and execution speed. However, you can never eliminate market and investment risks entirely. It’s usually best to choose an order type based on your investment goals and objectives.

Sell Stop Order

With a sell stop order, you can set a stop price below the current price of the stock. If the stock falls to your stop price, your sell stop order becomes a sell market order.

Example

MEOW is currently trading at $10 per share. You want to wait to sell MEOW because you think it’ll rise to a higher price. To help protect yourself in case MEOW reverses itself and begins falling, you can set your stop price to $8.

  • If MEOW falls to $8 or lower, your sell stop order becomes a sell market order. Then, MEOW is sold at the best price currently available.
  • If MEOW stays above $8, a market order isn’t triggered, and you keep your shares.

These examples are shown for illustrative purposes only. In general, understanding order types can help you manage risk and execution speed. However, you can never eliminate market and investment risks entirely. It’s usually best to choose an order type based on your investment goals and objectives.

Reference No. 20190822-930961-2814805
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