What Is a Stop Order? Stop vs Stop-Limit Orders Explained With Examples

A stop order is an order to buy or sell once the price reaches a set stop price; it then becomes a market order, or a limit order if it is a stop-limit order.

A stop order waits. Nothing happens to it while the price stays on the near side of the stop, and then, once the stop price is reached, it turns into an ordinary order and meets the book like any other. This page covers what the stop price does, sell stops and buy stops, the stop-limit order, a worked example against a hypothetical order book and a second one across an overnight gap, the risks the regulators' investor pages list, the trailing stop, and how a stop order differs from the price alerts Kresmion sends. Kresmion is a data terminal, not a broker: it places no orders and holds no funds. It is descriptive throughout.

What the stop price does

FINRA defines a stop order as an order to buy or sell a security once its price reaches a specified price, the stop price, at which point the order automatically turns into a market order and is executed as soon as possible at the current market price. Investor.gov, the SEC's investor site, uses the same definition and adds that a stop order is also called a stop-loss order.

The stop price is a trigger, not a promise. It decides when the order becomes live; it does not decide the price at which it executes. Before the trigger the order does not trade at all. After the trigger it is a market order, with everything that implies: it fills against whatever the book holds at that moment, which is the subject of market order vs limit order.

Sell stops and buy stops

The two sides are mirror images, and Investor.gov places them on opposite sides of the current price:

• Sell stop. Entered at a stop price below the current market price. Investor.gov says investors use it to limit a loss or protect a profit on a stock they own.
• Buy stop. Entered at a stop price above the current market price. Investor.gov says investors use it to limit a loss or protect a profit on a stock they have sold short, the position described in what short selling is.

A buy limit order is the reverse of a buy stop in where it sits: a buy limit waits below the market for a lower price, while a buy stop waits above the market and becomes live only once the price has risen to it.

The stop-limit order

FINRA describes the stop-limit order as a stop order designed to trigger the activation of a limit order instead of a market order. It carries two prices: the stop price, which decides when the order becomes live, and the limit price, which is the worst price it will accept once live.

That second price swaps one risk for another. In FINRA's words, the shares will only be bought or sold once the stop price is reached if the brokerage firm can obtain the specified limit price or better, and, as with any limit order, there is no guarantee that the order will be executed. FINRA describes the difference as a trade-off between getting a price and getting an immediate execution.

A worked example against an order book

Take the same hypothetical stock as the market order vs limit order explainer, now trading around 50.30 and later quoted 50.00 bid. Its bid side, the buyers resting below the price, holds 400 shares at 50.00, 300 at 49.98 and 600 at 49.95. An investor owns 600 shares and has placed a sell stop at 50.00.

The sell stop. The price falls to 50.00 and the stop is triggered. The order is now a market order to sell 600 shares, and it takes the best bids first: 400 shares at 50.00 ($20,000) and 200 at 49.98 ($9,996). The total is $29,996, an average of about 49.993 a share. The stop price was 50.00; the shares sold for 50.00 and 49.98, because only 400 shares were bid at the stop price.

A stop-limit at 50.00 with a limit of 49.99. The same trigger turns this order into a sell limit at 49.99. It sells 400 shares at 50.00, which is the limit price or better. The next bid, 49.98, is below the limit, so the remaining 200 shares do not sell; they rest in the book as an offer at 49.99. Whether they ever sell depends on a buyer arriving at 49.99 or higher.

The difference here is two cents on 200 shares. The second example shows when it is larger.

A second example: the overnight gap

This time the sell stop at 50.00 is a good-till-cancelled order, so it is still working the next day. The stock closes at 50.40. News arrives after the close, and the next morning the first trades print near 47.00, with bids around 47.00 and lower. The price never traded at 50.00 on the way down; it opened below it.

The sell stop. The opening trades are below the stop price, so the stop is triggered and becomes a market order to sell 600 shares into a book bid around 47.00. It sells at the bids near 47.00 or lower. If all 600 shares sold at 47.00, the proceeds would be $28,200, which is $1,800 less than 600 shares at the 50.00 stop price.

The stop-limit at 50.00 with a limit of 49.99. The trigger turns it into a sell limit at 49.99, but every bid is far below that. Nothing fills. The investor still holds all 600 shares, now priced near 47.00, and the order rests at 49.99 until it fills, expires or is cancelled.

Neither outcome is a malfunction. The stop order did what it says, execute once triggered, and the stop-limit did what it says, never sell below the limit.

The risks the investor pages name

FINRA's investor note on stop orders during volatile markets lists the risks plainly. The price received on execution could be markedly different from the stop price, and in a fast market a seller could receive significantly less. A rapid price move over a short period can trigger a stop order even if the stock later rebounds to its prior level, and once the order is executed the trade cannot be undone. The same note says the inherent risks of stop orders have prompted certain stock exchanges to stop accepting them, although a brokerage firm might still accept them. Investor.gov's glossary entry makes the same two points: a stop could be activated by a short-term fluctuation in a stock's price, and the execution price may differ from the stop price, especially in a fast-moving market.

FINRA also advises asking the brokerage firm which order types it accepts, what they cost and how it handles them, particularly during volatile market conditions, because not all orders are handled the same way.

Research has also looked at where stops sit. Carol Osler of the Federal Reserve Bank of New York examined the stop-loss and take-profit orders placed with a large foreign exchange dealing bank and found that their requested execution rates were strongly clustered at round numbers, which are often used as support and resistance levels, and that stop-loss orders tended to intensify price trends. That was one bank's currency orders; it describes where orders were placed, not where any price will go.

The trailing stop

FINRA describes the trailing stop-loss order as a stop order that sets its stop price differently: the investor tells the brokerage firm to sell if the stock declines a certain percentage or dollar amount from its market price. Once triggered it behaves like the stop order it is built from, so the gap and fast-market risks above apply to it in the same way. How the stop price is updated as the market moves is defined by the brokerage firm that holds the order.

Price alerts in Kresmion are not orders

Kresmion does not route, place or hold orders of any kind, including stop orders. What it offers that resembles the trigger half of a stop is the price alert. In the alert settings of a signed-in Kresmion account, a user can watch a stock or a crypto asset and be notified when its price reaches a chosen level or moves by a chosen percentage, in the app, by email or, once a Telegram account is linked, on Telegram.

The two differ in what happens next and in what they watch. A triggered stop order trades; a triggered Kresmion alert sends a message and nothing else. For a stock, the alert compares the level with the latest daily closing price Kresmion has stored, so a move through the level during the day that reverses before the close does not fire it; for a crypto asset it reads the latest stored price, refreshed every few minutes, for the crypto assets Kresmion tracks. For what a market order meets in a real book, Kresmion's order book explainer walks a live prediction-market example.

Honest limitations

Both worked examples use invented books that hold still, and a real book changes between the trigger and the fill. Brokers and venues differ in which price triggers a stop, in which order types and sessions they support, and in how they route the triggered order, so this page describes the order types as FINRA and the SEC define them rather than any one firm's rules. Fees and price improvement are left out. The research cited on where stops cluster covers one dealing bank's currency orders and is not a description of stock markets today.

Key takeaways

Frequently asked questions

What is the difference between a stop order and a stop-limit order?

Both wait for the price to reach the stop price. A stop order then becomes a market order and executes as soon as possible at the price available. A stop-limit order becomes a limit order, so it will not execute worse than its limit price, but FINRA notes there is no guarantee it executes at all.

Does a stop-loss order guarantee the stop price?

No. FINRA says the price received on execution could be markedly different from the stop price, and in a fast market significantly less for a seller. The stop price decides when the order becomes a market order, not the price at which it fills.

Why did my stop order fill below the stop price?

Once triggered, a stop order is a market order, and a market order fills against the bids or offers in the book at that moment. If the book holds less than the full order at the stop price, or the price jumps past the stop, as across an overnight gap, part or all of the order fills at worse prices.

Is a buy stop the same as a buy limit?

No. A resting buy limit waits below the current price and fills only at the limit or lower. A buy stop sits above the current price and becomes a market order once the price rises to the stop. Investor.gov describes the buy stop as a way to limit a loss or protect a profit on a short sale.

Can I place a stop order on Kresmion?

No. Kresmion is a data terminal and not a broker. It can send a signed-in user a price alert when a stock or crypto asset reaches a chosen level, but that is a notification only, and orders are placed with a broker or a trading venue.

This page is information, not investment advice.

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Source: FINRA, Order Types, https://www.finra.org/investors/investing/investment-products/stocks/order-types ; FINRA, Stop Orders: Factors to Consider During Volatile Markets (26 March 2025), https://www.finra.org/investors/insights/stop-orders-factors-consider-during-volatile-markets ; Investor.gov (SEC), Types of Orders, https://www.investor.gov/introduction-investing/investing-basics/how-stock-markets-work/types-orders ; Investor.gov (SEC), Glossary: Stop Order, https://www.investor.gov/introduction-investing/investing-basics/glossary/stop-order ; Carol L. Osler, Currency Orders and Exchange-Rate Dynamics, Federal Reserve Bank of New York Staff Report 125 (April 2001), published in The Journal of Finance 58(5), 2003, https://www.newyorkfed.org/research/staff_reports/sr125.html ; Kresmion alert rules (price alerts). The order books, prices and the gap in the worked examples are hypothetical.

Kresmion Research.