An order that allows you to buy / sell a stock automatically when its price reaches a certain level. When a stop order is triggered, it becomes a market order.
- A buy-stop order is placed at a price above the current market value and if triggered, it is used to protect short positions
- A sell-stop order is placed at a price below the current market value and if triggered, it is used to protect long positions
- Suppose you've bought a stock at $500. So if you place a sell-stop order at $495, once the stock's price reaches $495, it'll automatically sell at whatever price is available
The distinction between a limit and a stop order is that a limit order purchases or sells for the price you’ve specified or better, whereas a stop order becomes a market order when activated, with you being liquidated at the current market price, which may be higher (buy-stop) or lower (sell-stop) than the stop price.
The same applies to cryptocurrencies (excluding buy-stop order): replace stock with cryptocurrency.