Which way round it goes
A buy stop sits above the current price, a sell stop below. That is the opposite of a limit order, and it catches people out constantly. A limit waits for a better price; a stop waits for confirmation and accepts a worse one.
Two different jobs
As an entry, a stop order takes a position when price breaks a level, which is how breakout strategies are traded without watching the screen. As an exit, the same mechanism is the stop loss that closes a losing position.
It becomes a market order
Once triggered, a stop order fills at whatever is available, which means it can slip. This is why a stop loss during a violent move can be filled well beyond the level set, and why a stop is protection rather than a guarantee.
Stop limit orders
Some platforms offer a stop that becomes a limit rather than a market order, so it will not fill beyond a price you specify. It protects against slippage and introduces the opposite risk: in a fast move the order may not fill at all, leaving the position open.
In short
| Buy stop | Placed above the current price |
|---|---|
| Sell stop | Placed below the current price |
| Becomes | A market order once triggered |
| Used for | Breakout entries and stop losses |
Common questions
What is the difference between a stop and a limit?
Direction. A buy limit is below the price and a buy stop is above it. The limit is trying to get a better entry; the stop is waiting for the move to prove itself first.
Can my stop loss be jumped over?
Yes. Over a weekend gap or during a violent release, price can move past the level without trading at it, and the order fills at the next available price. That is called gapping, and it is the reason position size matters more than stop placement.
Should I use a stop limit for my stop loss?
Rarely. It protects the price at the cost of possibly not exiting at all, and an unfilled stop loss in a fast move is the situation the stop existed to prevent.
Trading forex and CFDs on margin carries a high level of risk. Most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade.