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Definition of 'Stop'

A Stop is an order placed in the market to limit your loss.

When the market trades at the price that you have selected for your Stop your position is closed out.

Stops can be held (1) in your head, (2) on your trading platform, (3) or at the exchange.

1. Mental stops require that you call the broker or click on the appropriate button on your trading to execute the stop. These are the least reliable sort of stops because the trader may change his/her mind about executing the stop and the market could move further through the stop before it is executed if it takes the trader time to click the button or call the broker.

2. Trading platform stops are more reliable than mental stops but can be slow if the trader does not have a fast connection to the brokers servers. Nevertheless, the are executed instantaneously when the price is touched.

3. Stops held on the broker's or exchange's servers are most reliable. They are not affected by problems that the trader might be having with his/her computers or connections to the servers and will be executed when the price is touched.

Some trading platforms have implemented what is called a Simulated Stop. A stop order is the same as a Stop Limit Order.

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