A trigger starts the exit
A stop order remains inactive until its trigger condition is met. A stop-market then seeks immediate execution, while a stop-limit submits a limit order.
The trigger may reference mark price, index price, or last price depending on the venue.
Stops do not guarantee the planned loss
A stop-market can slip through multiple levels. A stop-limit can remain unfilled if price moves beyond its limit. Market gaps and thin liquidity make both outcomes more likely.
Place the stop before sizing the trade
Define where the trade idea is invalid, calculate the loss between entry and stop, then choose a position size that keeps that loss within your risk budget.
Moving a stop farther away only to avoid taking a loss increases the risk beyond the original plan.
Trigger, order, and fill are separate events
A stop level first activates an instruction. A stop-market instruction then seeks immediate execution and can slip; a stop-limit instruction constrains price but can fail to exit. Provider implementations may trigger from mark, index, mid, bid, ask, or last price, so the displayed trigger source matters.123
Size the trade using a stressed fill beyond the trigger rather than assuming a perfect exit. The buffer should reflect normal spread, likely impact, fees, and the possibility of a gap during news or a market reopening.4
Worked loss-budget example
A trader plans to risk $50 with an entry at $100 and an invalidation at $98. Ignoring costs, the $2 distance supports 25 units. If the stress case assumes a $97.60 average exit plus $5 of total fees, the same 25 units could lose about $65. The quantity must fall to about 19 units to keep the stressed loss near $50.14
This calculation does not guarantee the final loss. It makes the assumed gap and costs visible so the position is not sized from an ideal trigger alone.4