How it works
Whereas a regular limit order is conditioned on buying at or below, or selling at or above, a specified price, a stop order is triggered under the opposite condition: buy once the price rises to or above a level, or sell once it falls to or below a level.
Use cases and things to watch for
By setting an order to automatically sell once the price falls a certain percentage from your purchase price, you can respond according to a predetermined rule even when you cannot watch the market at all times.
However, because the order is only placed once the specified price is reached, in fast-moving markets it can execute at a less favorable price than expected.