< Investing with Stocks: The Basics
Help Center > Investing > Investing with Stocks: The Basics

Stop Order

A stop order is an order to buy or sell a stock once 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. At its most basic, stop orders are used to trigger a purchase should the stock price hit or go above the stop price. Or trigger a sell should the stock price hit or drop below the stop price.

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 $6 per share. You want to wait to purchase MEOW until it reaches $8 because you think it’ll rise much higher, but only after it reaches $8, so you 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. Please note that in some cases only a portion of your order may get executed given insufficient shares available at certain prices. 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

You purchased MEOW for $10 a few months ago. It’s currently trading at $20 per share ($10 profit). Your goal is to make at least $5 per share if the price were to drop. So you create a sell stop order at $16.50. If MEOW reverses itself and starts to drop below the stop price of $16.50 it becomes a sell market order.

  • If MEOW falls to $16.50 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 $16.50, a market order isn’t triggered, and you keep your shares.

These examples are shown for illustrative purposes only. Please note that in some cases only a portion of your order may get executed given insufficient shares available at certain prices. 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.

Note

Stop orders created incorrectly or at an unexecutable price may be rejected. Learn more by checking out our Help Center article on order rejections.

Reference No. 20210310-1552922-4672657
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