Sell stop

A sell stop is a pending order placed below the current bid. When the bid falls to that level, the order triggers and becomes a market order.

It has two everyday uses:

• Opening a short position on a breakdown, for example below support or the bottom of a range.
• Closing a long position at a loss. The stop-loss on a buy trade is a sell stop.

Example

Illustrative figures: you are long one mini lot of AUD/USD from 0.6600, and you set a stop-loss at 0.6560. That is a sell stop 40 pips below your entry.

• If the bid falls to 0.6560, the position is closed at the next available price.
• In normal conditions you lose about 40 pips, roughly $40 on one mini lot.
• If the market gaps over the weekend and opens at 0.6530, the stop fills near 0.6530 and the loss is about $70.

That gap scenario is the main thing to understand about stop orders: they decide when you exit, not the exact price you get. A guaranteed stop-loss, where offered, fixes the price for a premium.

Common mistakes

• Placing stops at obvious round numbers where many other orders cluster, so the price touches them and reverses.
• Using a sell limit by mistake. A sell limit must be above the market; a sell stop below. Platforms normally reject the wrong combination, but the names are easy to mix up.
• Stops too close to the spread. If the stop is only a few pips away, a normal widening of the spread can trigger it.

The mirror image is the buy stop. Our guide on where to put a stop-loss goes further.