Stop loss order
Family II · Orders
Not to be confused with stop limit order, stop order, trailing stop.
Stop loss order is a conditional order that remains dormant until the market touches a preset stop price, then converts into a market order. Its purpose is to cap a loss on an existing position, but the fill price is not guaranteed and may differ from the stop level in fast or thin markets. The order is therefore a trigger, not a promise of execution at a specific price.
How a stop loss order works
A stop loss order is placed away from the current market price: a sell stop sits below the market for a long position, and a buy stop sits above the market for a short position. Until the stop price is reached, the order is not visible to the market and does not execute. Once the stop price trades, the order is released as a market order and is filled at the best available price, which may be worse than the stop price. Some venues support stop orders with a limit price attached, but a plain stop loss order has no price ceiling or floor.
Worked example
The stop was set at 95.00, but the market skipped that level and the order filled at 93.50. The realised loss is larger than the 5.00 planned, illustrating that a stop loss order controls the trigger, not the fill.
Practical points
- Stop loss orders are typically triggered by the last traded price, but some brokers use the bid, the ask, or a combination; the reference price varies by venue.
- In fast markets, the executed price can be substantially different from the stop price, a gap known as slippage.
- Some markets restrict stop orders to certain order types or prohibit them on specific instruments; rules vary by exchange and regulator.
- A stop loss order does not guarantee execution at the stop price and may remain unfilled if the market never trades at or through the stop level.
Often confused with
- stop limit order
- A stop-limit order adds a limit price after the stop is triggered, so it may not fill at all if the market moves past the limit, whereas a stop loss order becomes a market order and fills at the next available price; the visible sign is the presence of two prices (stop and limit) on a stop-limit order.
- stop order
- A stop order is the broader category that includes both stop loss and stop entry orders, while a stop loss order is specifically a stop order used to exit an existing position; the visible sign is the position it protects, not the order mechanics.
- trailing stop
- A trailing stop moves the stop price automatically as the market moves favourably, whereas a stop loss order has a fixed stop price set at the time of placement; the visible sign is whether the stop level changes over time.