A stop order is not a limit order

Question

You own a stock trading at 100 and place a stop-loss "sell" at 95 to cap your downside. Overnight, bad news breaks and the stock opens at 90. Your order fills at 89.80, not 95. What is a stop order, why did it not protect you at 95, and how does it differ from a limit order?

Accepted Answer

A stop order is dormant until the market touches its trigger price. When the stock trades at or through 95, the stop activates and becomes a plain market order to sell. From that moment it takes whatever bids are available, with no price floor. Because the stock gapped straight from 100 to 90 without trading in between, the trigger and the execution happened at very different prices: the order activated on the way down and swept the book to 89.80. The 95 was never a promise to sell at 95; it was only the level that woke the order up. Contrast this with a limit order, which is a price promise:…

A stop order is not a limit order

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