A stop order is an order to buy or sell a security at a specified price. It is used to limit the downside risk of an investment by exiting the market when the stock price reaches a certain point at which the investor is no longer willing to tolerate the risk. It’s also known as a stop-loss order.

Stop orders may be triggered when a security's price reaches a certain level or when a certain price target is achieved. They can be used to replicate a market order and limit potential losses. They also allow investors to enter a market at a specific price point.

Stop orders may be used for numerous purposes, including protection from price volatility, entry into a market, or exit from a market. They often work in tandem with limit orders. Stop orders help investors guarantee that a certain price level is always maintained; if the security’s price exceeds the pre-specified level, the order will be executed as a market order and force the investor to exit the market.

Stop orders should be in place whenever an investor has an open position to limit their potential losses. They can also be used to enter the market in the direction the market is moving, which is commonly referred to as breakout trading. For example, if the market is increasing in price, a stop-entry order will make the investor go long; if the market is decreasing in price, a stop-entry order will make the investor go short.

In addition to protecting against losses, investors can use a trailing stop-loss to alternatively protect their gains, by moving their stop-order in the same direction as the market. This allows the investor to stay in the market for as long as the market is moving higher, until the stop-loss is activated. Furthermore, stop orders can be used with a financial or technical price level as the trigger.

Regardless of when a stop order is utilized, it serve as great tool for limiting losses or entering the market when the market is making a move. Stop orders are commonly used by active traders who require protection from volatility; they ensure that the investor’s loss is minimized while they also maintain entry into the market when the stock price reaches a certain point.