stop order

A stop order is a type of instruction given to a broker to buy or sell a security when it reaches a specific price, known as the stop price. This order type is activated only when the market price hits the designated stop price.12

Stop orders can serve two primary functions:
* Locking in profits: If a stock's price has risen, a sell stop order can be placed at a lower price to ensure that a profit is captured if the stock's value begins to fall.2
* Limiting losses: Conversely, if a stock's price is declining, a sell stop order can be used to exit the position and prevent further losses.2

A buy stop order can also be used to enter a position, for instance, to buy a stock if its price rises above a certain resistance level. When a stop order is triggered, it typically converts into a market order, meaning it will be executed at the best available price at that moment, which may differ slightly from the stop price.2