Stop Loss Order: How It Works, Stop vs Stop Limit, and Gaps

A stop loss order is an instruction to sell a position (or buy back a short) once the price reaches a level you set, the stop price. At that moment it becomes a market order, so it caps how long you stay in a losing trade but not the price you get. The SEC's investor bulletin, updated August 18, 2026, puts it plainly: "The stop price is not the guaranteed execution price for a stop order" (Investor.gov). A stop limit order fixes the worst price but may not fill. On the daily S&P 500 ETF from 2021 to 2026, a sell stop 2% under the previous close was reached on 81 days, and on 11 of them the ETF opened below the stop.

What is a stop loss order?

The SEC's bulletin on order types defines it this way: "A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order." A sell stop sits below the current price and protects a position you own; a buy stop sits above it and protects a short sale.

The SEC adds three cautions that matter in practice: a short-term, intraday move can trigger the stop and give "an execution price for the stop order that is substantially worse than the stock's closing price for the day"; firms decide differently whether the stop price has been reached, "Some brokerage firms use only last-sale prices to trigger a stop order, while others use quotation prices"; and stop orders "may not be available through all brokerage firms".

Stop loss vs stop limit

The SEC's example of different prices: a sell stop limit with a stop price of $3.00 and a limit price of $2.50 "would become an active limit order if market prices reach $3.00, however the order can only be executed at a price of $2.50 or better." Setting the limit below the stop gives the order room to fill in a fast market; setting it at the stop protects the price but makes a miss more likely.

When the price gaps through the stop

Overnight news can make a stock open below your stop. The stop is then triggered by the first trade, at the open, and a stop order sells near that price, below the stop. To measure how often this happens, we ran one rule on the site's daily S&P 500 ETF bars, January 5, 2021 to October 28, 2026 (1,461 sessions, each with a previous close; dividend-adjusted prices, so lower than the prices quoted at the time): each day, a sell stop sits 2% below the previous close. It is reached when the day's low touches it, and gapped through when the day opens below it. Daily bars cannot show the exact fill, so the open stands in for the stop order's fill, and a stop limit with its limit at the stop counts as fillable only if the day's high came back to the limit.

• 2% stop: reached on 81 days; the ETF opened below the stop on 11 of them, by 0.56% at the median and 2.03% at most. On 6 of those 11 days the high came back to the stop, so a stop limit there could have filled; on 5 it could not.
• 3% stop: reached on 21 days, opened below it on 3, by 1.02% at most; the high came back to the stop on all 3.

Two dated cases show both sides of the choice:

What came next matters as much as the fill. After April 3, 2025, the ETF kept falling: its low on April 7 was 473.94, 12.9% under the stop, and its high first reached 544.20 again on April 28. The stop order sold near 536.22 and missed that fall; a stop limit left good until canceled would have kept the shares through it and filled only on April 28, at the limit. After August 5, 2024, the ETF closed back above the stop on August 8 and was at 537.98 twenty sessions later, so the seller at 498.57 sold close to the low of 497.23.

Markets that trade around the clock have no opening gap on a daily bar: each day opens where the previous one closed, so on the site's daily Bitcoin bars (March 9, 2025 to October 28, 2026) the 2% stop was reached on 181 days and could never be gapped through. That comes from how the bars are built, not from the market being safer: the risk moves inside the day, where a fast fall can still fill a stop below its price. On the site's daily EUR/USD file, March 16, 2021 to June 30, 2023, the 2% stop was reached on a single day, with no gap; on a longer daily EUR/USD series, January 3, 2012 to October 23, 2026, it was reached on 9 days, again never through the open.

Types of stop orders

• Stop (stop loss): becomes a market order at the stop price.
• Stop limit: becomes a limit order at the stop price, with a limit at that price or another.
• Trailing stop: "a stop or stop limit order in which the stop price is not a specific price" but a percentage or dollar amount from the market price that moves only in your favor; see the trailing stop guide.
• Bracket and contingent orders: a stop and a target sent together, where one cancels the other; see OTO and OCO orders.

Where to put the stop is a separate question, covered with tested percentages and ATR multiples in what is a good stop loss percentage. The full list of order types is in the order types guide, and more risk topics in trading concepts.

Can you change a stop loss after buying shares?

Yes. A stop is an order like any other: you can place it after the purchase, move it, or cancel it as long as it has not been executed. Check how long it stays active. According to the SEC, unless you specify otherwise orders are "Day" orders, "good only during the trading day that the order is entered", and they do not carry over to the next day (Investor.gov, Understanding Order Types). A good-til-canceled (GTC) order "lasts until it is executed in full or it is canceled", within a time limit that "may vary based on the brokerage firm". A stop you placed as a day order is gone the next morning.

One rule keeps a stop useful: move it only in the direction of the trade, up for a long position, and never further away because the price is getting close. Moving it away turns a planned loss into an open one. You can also split it: one stop order on part of the shares at one level and another on the rest at a lower level.

Pros and cons of a stop loss order

Commissions and fees on the exit, if any, depend on your broker; the order itself is a standard instruction.