What is stop order?

What it means

A buy stop sits above the current market and a sell stop sits below it — the mirror image of a limit order. The logic is different too: instead of betting price will return, you are betting that once price passes a level it will keep going. This is why breakout systems are built on stop orders.

Why it matters

Once triggered, a stop becomes a market order, which means it inherits every property of one, including slippage. A stop order is therefore not a guaranteed price. On a fast gold move the trigger and the fill can be several dollars apart, and that difference is not a broker error — it is what a stop order is.

What this changes in practice

The same mechanism is what makes a stop loss imperfect protection. Traders often assume the stop caps the loss exactly. In practice it caps the loss at roughly that level under normal conditions, and only approximately during a gap or a news spike. Any position size calculated on the assumption of an exact stop is slightly optimistic — see the lot size calculator.