Stop orders explained in detail | Trading execution against an order book

In this video, we are going to look at stop orders. A stop order is a market order with a stop price, and this stop price determines when the market order is submitted to the order matching engine.

Like limit orders, stop orders have 2 parameters that affect their behavior.
Limit orders have “the side of the order” and “the limit price location on the book”.
Stop orders have “the side of the order” and “the stop price location on the book”.

Like we saw with limit orders in our previous video, we still have 4 permutations when dealing with stop orders. The difference is that we have a stop price instead of a limit price. It’s important to note that stop orders can have a limit price as well, but when stop orders have a limit price, we call these order types stop limit orders. Similarly, when we are talking about a stop order without a limit price, we could say this is a stop market order, but stop market orders are usually just referred to as stop orders.

A stop order is just a market order with a stop price.
A stop limit order is just a limit order with a stop price.

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