Legal Definitions - stop order

A stop order is a type of order that is placed with a broker to sell or buy a security once it reaches a certain price. It is used to limit losses or lock in profits.

For example, if you own a stock that is currently trading at $50 per share, but you are worried that it might drop in value, you can place a stop order at $45 per share. If the stock drops to $45, your broker will automatically sell the stock to limit your losses.

Another example is if you want to buy a stock, but only if it reaches a certain price. You can place a stop order to buy the stock once it reaches that price.

Stop orders are useful for investors who want to protect their investments or take advantage of market movements without constantly monitoring the market.