Stop order definition
A stop order is an order to buy or sell once a pre-defined price is reached. When the price is reached, the stop order becomes a market order and is executed at the best available price.
It is important to remember that stop orders can be affected by market gaps and slippage and will not necessarily be executed at the stop level if the market does not trade at this price. A stop order will be filled at the next available price once the stop level has been reached.
Benefits of stop orders
Stop orders are a necessary tool when trading forex to help protect positions from outsized losses. There are several different types of stop orders you can use depending on your trading strategy. In general, most of them cost nothing when executed and work well in slowly declining markets. Regular stop orders offer protection for trade execution, while specialized stop orders like stop-limits and trailing stops offer different types of protection. It’s worth studying all stop order types as different types will better apply to different trades.