What it is
A stop-loss order becomes a market order once the security's price reaches or falls below the designated "stop price." For example, if you own a stock trading at $50 and set a stop-loss at $45, your shares will be sold once the price hits $45, converting into a market order. This tool helps investors protect profits or cap losses without constant monitoring.
Stop-loss orders are a common risk management tool discussed in trading strategies and investor education. News reports often highlight their effectiveness during market downturns or for highly volatile stocks. However, they can also be triggered by temporary price fluctuations, leading to premature sales. Understanding how they convert to market orders is crucial, as the actual execution price might be below the stop price in fast-moving markets.
Why it matters
Stop-loss orders help protect your investments by automatically selling a security if it drops to a certain price, limiting potential losses.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice