A stop order is an instruction to stop an order from executing until price reaches a stop price specified by the trader. This order helps traders buy only after price rises to the stop price or sell only after price drops to the stop price. This order allows traders to buy or sell at the best available price. Generally speaking, traders use stop orders to discontinue their losses when prices move unfavorably (i.e., against their positions). Hence, stop orders are also known as stop loss orders.

On the other hand, a limit order is an instruction to buy or sell at some specified price. Limit buy orders are placed below the market while limit sell orders are placed above the market. In this sense, execution of a limit order depends on the limit price and the market price: the market may never rise enough or fall enough to trigger a limit order, and a trader (or a customer), using a limit order, may miss the market. A limit order may or may not get executed.

Though both orders specify price conditions, they do differ in the purpose of the specified price. A stop order allows the activation of an order when the market price reaches or surpasses a specified stop price. In contrast, a limit order can be filled only at a price equal to or better than a specified limit price. When traders attach a stop instruction to a limit order, two prices must be specified: the stop price and the limit price. The former sets the condition to activate the limit order, and the latter indicates how a trade may be arranged. The combined order is known as a stop limit order.

Stop orders are similar to limit orders in one feature. Both orders allow traders to communicate to their brokers the conditions under which their future trades will be constructed. Therefore, traders who use such orders do not need to closely observe the market. They would be free to take care of other business.