Stop order definition
Stop orders are types of order that instruct your broker to execute a trade when it reaches a particular level: one which is less favourable than the current market price. They can also be known as stop-loss orders.
Stop orders differ from market orders because you are specifying the price at which a trade should be executed, instead of ordering your broker to execute a trade at the best price available when you make the order. They are the opposite of limit orders, which instruct your broker to buy or sell an asset at a particular price that is more favourable than the current market price.
There are two main reasons that traders use stop orders. Firstly, they use them to limit risk by automatically closing a position once it reaches a certain level of loss. This is called a stop closing order. Secondly, they use them to take advantage of market movements by opening a position when a market drops to a certain level. These are called stop entry orders.