A stop order is a type of order used in trading to buy or sell an asset once the price reaches a specified level, known as the stop price.
There are two main types of stop orders:
1. Stop-Buy Order: This order is employed when anticipating a price increase. A stock is trading at $95 If an investor believes the stock will rise significantly and surpass $100, they can place a stop-buy order at $100. If the stock's price reaches or exceeds $100, the stop-buy order becomes a market order, resulting in the purchase of the stock at the best available price.
2. Stop-Sell Order: This order type is employed to limit potential losses on an existing holding. For instance, with 1 share held at a current stock price of $95, a stop-sell order is set at $90 to cap losses. If the stock's price drops to or below $90, the stop-sell order turns into a market order, selling the stock at the best available price and limiting the loss to $10 on this share.
Steps for Using a Stop Order:
Step 1: To place a stop order, you should select “Buy-Stop or Sell-Stop” first.
Step 2: Then, select the “Stop” and enter the amount you want to buy or sell.
Step 3: Enter the “Amount” you wish to purchase or loss limit.
Step 4: Enter the price at which you wish to execute a “Buy Order” or the price at which you wish to “Limit Losses”.
Step 5: Click the “Place Order Button” and your order will be executed once the market price reaches that price.