Stop market order
Family II · Orders
Not to be confused with stop loss, stop limit order, stop order.
Stop market order is a conditional order that rests in the book until a chosen stop price is touched, then converts into a market order and executes at the best available prices. It is used to enter or exit a position when price crosses a threshold, not to guarantee a specific fill. The stop price itself is not an execution price.
Mechanics and execution
A stop market order has two prices: the stop price (the trigger) and the resulting market order. When the market trades at or through the stop price, the order is released and filled at whatever prices the market offers. In fast or thin markets, the fill can be substantially away from the stop price, a difference known as slippage.
For a sell stop, the stop price is placed below the current market; for a buy stop, above it. Some venues treat a stop trigger as a marketable order immediately, while others may hold it for a brief interval. The order does not become a resting limit order at the stop price.
Worked example
The stop price of 48.00 triggered the order, but the actual sale occurred at 47.80, 0.20 below the stop. That gap is slippage and is not recoverable.
Uses and risks
Stop market orders are commonly used to limit losses on an existing position or to enter on a breakout. The principal risk is that the executed price may differ materially from the stop price, especially around news events, at the open, or in illiquid instruments. A stop market order does not cap the loss at the stop price; it only initiates the exit.
Some markets or brokers may restrict stop market orders to certain sessions or require them to be entered as stop limit orders. Rules on order types, trigger conditions and price bands vary by venue and regulator.
Often confused with
- stop loss
- A stop-loss is a general risk-management instruction to close a position at a predetermined loss level, which may be implemented as a stop market order or another order type; the visible sign is that a stop-loss describes the purpose, while a stop market order names the mechanism.
- stop limit order
- A stop limit order becomes a limit order at the stop price and may not fill if the market gaps past the limit, whereas a stop market order becomes a market order and fills at the best available price; the visible sign is the presence of a limit price in addition to the stop price.
- stop order
- A stop order is the broader category of conditional orders triggered by a stop price, and a stop market order is the specific variant that converts to a market order; the visible sign is that a stop order may specify either a market or a limit execution, while a stop market order specifies market execution only.