How it works
You set a stop trigger price. The order sits dormant in the order book until the market touches that price. When it does, the order activates as a market order and fills against the best available counterparty. There is no price guarantee on the fill; in a fast or gapping market, the actual execution can land significantly worse than the trigger.
Example
You hold a long EUR/USD position from 1.0856. You set a stop at 1.0820 to cap a 36-pip loss. EUR/USD drifts down to 1.0820. The stop fires as a market sell, filling at 1.0819 (slightly below the trigger due to spread and execution latency). Your loss is 37 pips. Now imagine a news gap: EUR/USD jumps from 1.0830 straight to 1.0780 with no trades in between. Your stop fires at the next available print, 1.0780, locking in a 76-pip loss instead of the planned 36.
Why it matters
Stop orders are how disciplined traders enforce risk limits without watching the screen. The trade-off is gap risk: in fast moves, the actual loss can far exceed the planned loss. Size positions assuming worst-case slippage, especially on news days, weekend gaps in forex, and earnings announcements in stocks.
