Stop

A stop, short for stop order (and often used interchangeably with "stop-loss"), is an instruction placed with a broker to buy or sell a security once its price reaches a certain level. It sits inactive until the market touches that price, then it triggers and turns into an order to get you out of a trade.

The main use is to cap losses. If you buy a stock at $50 and place a stop at $48, you are telling your broker: if the price falls to $48, exit the position rather than let the loss grow. The stop does the watching so you do not have to stare at the screen waiting to react.

The nuance that trips people up is what kind of order the stop becomes once triggered. A basic stop (sometimes called a stop-market order) turns into a market order the instant the price is touched, which means it will execute at the next available price — not necessarily your stop price. In a fast-moving or thin market, that next available price can be noticeably worse than what you set, a gap known as slippage. A stop-limit order instead turns into a limit order at a price you specify, which protects you from a bad fill but carries the risk of not filling at all if the price keeps moving away.

Stops can also be used to lock in gains rather than only limit losses — a "trailing stop" moves up as a trade moves in your favor, following the price at a fixed distance, so it can convert an open profit into a protected one without you manually adjusting the order.