INVESTING MECHANICS
Stops, explained
A stop was covered as one line on the order ticket. This is what it's actually protecting against — and where it can fall short.
A quick recap
The order types article introduced the stop order as a trigger: a price is set, and once the security trades at or through that price, the stop activates and turns into another order. What it activates into — and what can happen in the moments right after — is where a stop order becomes less mechanical and more of a judgment call.
Stop-loss vs. stop-limit
A stop order isn't one thing — it's a trigger attached to a second order, and which order it's attached to changes what the stop actually guarantees.
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A stop-loss order (sometimes called a stop-market order) turns into a market order once triggered. It guarantees the order will execute, but not at what price — in a fast-moving decline, the fill can land well below the trigger price.
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A stop-limit order turns into a limit order once triggered. It guarantees a minimum acceptable price, but not that the order will execute at all — if the price moves through the limit too quickly, the order can go unfilled while the position keeps falling.
Neither version is strictly safer than the other — each trades one kind of certainty for the other. A stop-loss protects against not selling at all; a stop-limit protects against selling at a price far worse than intended.
WHY IT'S EASY TO MISS
A stop order's trigger price and its execution price are not the same thing, and the gap between them can be larger than expected. Once a stop-loss triggers, it behaves exactly like the market order covered in the order types article — subject to the same bid-ask spread and liquidity effects. On a thinly-traded security, or during a sharp move, the eventual fill can land meaningfully below the price that was set.
Gaps and slippage
A stop order can only trigger at a price the market actually trades at. If a security's price jumps past the stop level entirely — overnight on news, or at the market open after an earnings report — the stop still triggers, but the fill happens at whatever price is available once trading resumes, not at the level that was set. This is called a gap, and the difference between the intended stop price and the actual fill is slippage.
This risk is highest on securities that trade less frequently, that hold earnings or other scheduled announcements, or during periods of broad market volatility — the same conditions that widen the bid-ask spread discussed in the entering and exiting a trade article.
Trailing stops
A standard stop sits at a fixed price and stays there until it's triggered or cancelled. A trailing stop instead sits at a fixed distance — either a dollar amount or a percentage — below the current market price, and moves up automatically as the price rises. If the price falls, the trailing stop stops moving and holds at its most recent level.
The effect is a floor that rises with a position's gains but never gives them back automatically. The tradeoff sits in how tight the trailing distance is set: a narrow trail locks in gains sooner but risks triggering on ordinary day-to-day price movement, closing a position that would have kept climbing. A wider trail rides out more of that normal movement but gives back more of the gain before it triggers.
VERIFY WITH YOUR BROKER: some brokers offer a "guaranteed stop" for a fee, which removes slippage risk entirely — confirm current availability and pricing for Canadian and U.S. self-directed brokers.
Where this fits on the path
The order types article explained what a stop order is on the ticket. The entering and exiting a trade article covered the mechanics around placing and closing positions. This piece is about what a stop is actually meant to do — manage risk on a position already held — and the gap between what it promises and what it can guarantee once the market is moving.
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