Stop Order (Stop Loss)
A dormant order that becomes live once a trigger price is touched.
What is Stop Order (Stop Loss)?
An order that sits inactive until the market trades at the stop price, at which point it converts to a market order (or, for a stop-limit, to a limit order). Used to cap losses or protect gains, but a gap through the stop can produce a fill well below the trigger.
Stop Order (Stop Loss): a worked example
Sell stop at $45 on stock bought at $50. Bad news gaps the open to $38 and the fill is $38, not $45.
More terms in Positions & Trade Mechanics
Long Position
You own the asset and profit when its price rises.
Short Position (Short Selling)
You borrow shares, sell them, and profit if the price falls.
Margin
Borrowing from your broker to buy securities, using the account as collateral.
Cash Account
An account where every purchase is paid for in full, no borrowing.
Leverage
Using borrowed money to increase exposure relative to your own capital.
Initial Margin (Reg T)
The equity you must put up to open a margin position - generally 50%.
Maintenance Margin
The minimum equity percentage you must keep in a margin account.
Margin Call
A demand to add cash or securities after equity falls below maintenance.