A stop order is triggered when a security’s price reaches a specified stop level, then becomes a market order for immediate execution. Stop orders include stop loss orders for risk management and stop entry orders for position initiation. These orders help automate trading decisions and ensure execution during fast-moving markets.

Stop orders provide discipline and automation for trading strategies but may experience slippage when triggered during volatile conditions. Understanding stop order mechanics and limitations helps optimize their use for risk management and strategy implementation while managing execution risks.

Real-world example: A stop order to sell Tesla at $240 triggers when the stock falls to that level, immediately becoming a market order that executes at the best available price, which might be $238 during rapid market decline.