Stop Orders vs. Mental Stops

You can place a stop with your broker or keep it in your head. Here is how stop and stop-limit orders work, what a mental stop really requires and which fits which situation.

Stop orders

A stop order (also called a stop-market order) sits with your broker. When the stock trades at or below your stop price, it becomes a market order and sells at the next available price. It will almost always fill, but not necessarily at your stop price. In a fast drop or a gap, the fill can be worse.

A stop order becomes a market order; a stop-limit becomes a limit order and may not fill.

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