Stop order

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A stop order is an order to buy or sell a stock once the stock reaches a specified price, known as the stop price. When the specified price is reached, the stop order becomes a market order. Also known as a stop-loss order.

Buy Stop Order — Investors typically use a stop order when buying stock to limit a loss or protect a profit on short sales. The order is entered at a stop price that is always above the current market price.

Sell Stop Order — A sell stop order helps investors to avoid further losses or to protect a profit that exists if a stock price continues to drop. A stop order to sell is always placed below the current market price.

The advantage of a stop order is you don't have to monitor how a stock is performing on a daily basis. The disadvantage is that the stop price could be activated by a short-term fluctuation in a stock's price. [1]

References

  1. Stop Order. Securities and Exchange Commission.