A trigger level, not a fill price
This is the whole point of the order and where most traders go wrong: the number you type is only the trigger level. When price touches it, your order becomes a market order and fills at the best price available at that moment — which can be far away.
This is exactly why a stop loss is an estimate rather than a guarantee: across a gap it triggers and fills far from its level, losing more than planned. "Risking 1%" is a planned figure, not a guaranteed one.
Price versus certainty
Order types are not a list to memorise but three questions: when do I get in?, when do I take profit?, and when do I get out at a loss? Each order type answers one of them.
This family works from one moment: gold at 2,400.00. A market order buys now; a limit order waits at 2,380 for a better price that may never come; a stop order buys at 2,420, a worse price bought with confirmation. The difference is not technical — it is an explicit trade of price against certainty.
A worked example
Gold at 2,400 and you want in only on confirmation. A buy stop at 2,420 does nothing until price reaches 2,420, at which point it becomes a market order.
You paid $20 worse than buying now — $200 on 0.10 lots — in exchange for not entering at all if price never moves. And if the breakout arrives on news it may fill at 2,423 rather than 2,420; that gap is part of the cost of breakout trading, not a fault in the order.
Common mistakes with this term
- Treating the level as a guaranteed fill price, when it is a trigger that converts to a market order.
- Placing a stop at a crowded round number, raising the chance of slippage when it triggers.
- Confusing it with a limit order; both are pending but they sit on opposite sides with opposite logic.