Hard stop refers to an actual stop order that instructs a broker to sell a security should its price reached a specific level. On the other hand, soft stop (also mental stop) is the unofficial price at which a trader believes time is up to exit a position. Traders don’t actually place the order in advance but watch the market and enter their orders at that market price once the stop price has been hit.

A hard stop is irrevocable in the sense that if a stock reaches it, execution takes place automatically and the trader cannot change his mind or reconsider his action. A soft stop is simply a reminder to rethink a stock if its price drops to a specific level. Some traders give themselves time to reconsider by setting their targets slightly lower and their mental stops slightly higher than actuals. This will set an early warning alarm to monitor the stock closely.