Orders 101
What Is a Stop-Loss Order? How It Works (and Its Limits)
How stop and stop-loss orders work, why your sell price isn't guaranteed, and when traders use them.
Beginner investing lessons and fake-money practice from the maker of Quoliv.
Quick answer
A stop-loss order tells your broker to sell a stock if its price falls to a level you choose, called the stop price. When the stop price is reached, the order becomes a market order and sells at the next available price. That price can be lower than your stop, especially if the stock gaps down.
What you’ll learn
- A stop-loss sells automatically if the price drops to your stop price.
- Once triggered, it becomes a market order.
- The final sale price can be worse than the stop price.
- A stop-limit order sets a minimum price but might not fill at all.
- Stops set too close can trigger on normal daily swings.
This explanation is part of our Day Trading lessons path, where you can explore the idea in short lessons and quizzes.
An example
You buy a stock at $100 and set a stop-loss at $90. If the price falls to $90, your order turns into a market order and sells at the best price available. In a fast drop, that might be $89.50, or much lower if the stock opens far below $90 after bad overnight news.
Stop order vs stop-limit order
| Stop (stop-loss) | Stop-limit | |
|---|---|---|
| When triggered becomes | Market order | Limit order |
| Will it sell? | Almost always | Only at your limit price or better |
| Price guaranteed? | No | Yes, but the sale isn't |
| Risk | Selling lower than planned | Not selling at all |
Common mistakes
- Setting the stop so close that ordinary price wiggles trigger it.
- Assuming the stop price is the price you'll get.
- Forgetting the order is still active weeks later.
A stop-loss limits damage in most cases, but it's not a guarantee.
Sources and methodology
This guide was written for education using the primary sources below. It does not evaluate your finances or recommend an investment. Read our editorial policy.