Stop order — An order that becomes active when price reaches a trigger level, most often used to close a losing position.
How stop order works in prop trading
A stop rests inactive until the market touches its trigger, at which point it becomes a market order — or, if it is a stop-limit, a limit order at a specified price. The plain stop guarantees activation but not price; the stop-limit guarantees price but may leave you in the position if the market runs past the limit.
For prop accounts a stop is the primary defence against a drawdown breach, and it is imperfect. A gap or a fast move fills you well beyond the trigger, and on an account with an equity-based trailing drawdown the floor can be reached while the position is still open and before the stop is touched. Size so that a stop filled several ticks late still leaves room.
Key points
- Becomes a market order at the trigger unless it is a stop-limit.
- Guarantees activation, never price — gaps and fast moves fill beyond the level.
- A stop-limit can leave you in a losing position if price runs past the limit price.
- On equity-trailed accounts the drawdown floor can be hit before the stop triggers.
Also known as
- stop loss order
- stop
- protective stop
Frequently asked questions
What is the difference between a stop and a stop-limit?
A stop becomes a market order when triggered and fills at whatever is available. A stop-limit becomes a limit order at a set price and will not fill worse than that — which protects the price but risks leaving you in the trade entirely.
Do prop firms require a stop loss?
Most do not, though a number of futures firms do and some cap the maximum stop distance. Regardless of the rule, a stop is the practical defence against breaching the daily loss limit or maximum drawdown.
Put this into practice
Stop order is described here as a plain-language educational definition. Firms, platforms, and account programs may apply different conditions or calculations. Verify the current official terms before using this definition to make an account decision.