A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. Stop orders are orders that are triggered when a stock moves past a specific price point. Beyond that price point, stop orders are converted into market orders that are executed at the best available price.
When the stop price is reached, a stop order becomes a market order.
A buy stop order is entered at a stop price above the current market price. Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they have sold short.
A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or to protect a profit on a stock that they own.
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Stop orders are used to limit losses with a stop-loss or lock in profits using a bullish stop.
References:
- https://www.sec.gov/fast-answers/answersstopordhtm.html
- https://www.investopedia.com/terms/s/stoporder.asp