Orders & execution
What is a Stop-Loss Order and how does it convert to a market order upon activation?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
A stop-loss order automatically triggers a market order to sell once a stock hits a specified price, converting from a dormant instruction into an active market order upon activation.
How it works
Stop orders are designed to limit losses, but because they become market orders when triggered, the final execution price can differ from the stop price, especially during gaps or fast declines.
An example
A trader sets a stop-loss at $45 on a stock bought at $50; if the price falls to $45, a market sell order is triggered and executes at the next available price.
Risk & limitations
During flash crashes or overnight gaps, stop-loss orders can execute far below the trigger price, resulting in larger losses than anticipated.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.