Stop Order Explanation
A stop order is a type of order that becomes active only when the market price reaches a specific level, called the stop price. Once triggered, it turns into a market order, executing at the best available price. Stop orders are used to protect profits, limit losses, or enter trades at specific price points.
Stop Order History
Stop orders have been used in financial markets for decades to help traders manage risk. Originally, stop orders were placed manually with brokers over the phone. With electronic trading and automation, stop orders became a key tool for forex traders, allowing them to execute trades without constantly monitoring the market. As trading technology evolved, different types of stop orders—such as stop-loss and stop-entry orders—became widely available.
Stop Order Etymology
The term “stop” comes from the Old English word stoppian, meaning “to block or prevent.” In trading, a stop order acts as a trigger to “stop” a position from moving too far against the trader or to enter a trade only when a certain price is reached. The word “order” originates from Latin ordinare, meaning “to arrange or command,” reflecting a trader’s instruction to the broker or trading platform.
People also ask
- What is the meaning of stop order?
- What is a stop buy order example?
- What’s the difference between a limit order and a stop order?
- Are stop orders a good idea?
What is the meaning of stop order?
A stop order is a trade order that activates only when the asset’s price reaches a set level. It then executes as a market order, buying or selling at the best available price.
What is a stop buy order example?
A stop buy order is placed above the current market price. For example, if EUR/USD is trading at 1.1000, and a trader wants to buy only if the price rises to 1.1050, they set a stop buy order at 1.1050. Once the price reaches this level, the order executes as a market buy order.
What’s the difference between a limit order and a stop order?
Limit Order: Executes only at a specific price or better. Example: A buy limit order at 1.1000 will only execute at 1.1000 or lower.
Stop Order: Triggers a market order when the stop price is reached. Example: A buy stop order at 1.1050 activates once the price hits 1.1050, executing at the next available price.
Are stop orders a good idea?
Stop orders are useful for managing risk and automating trade execution. They help limit losses, secure profits, and ensure trades are entered at key price levels. However, in volatile markets, stop orders may trigger at unfavorable prices due to price gaps or slippage.
