How Stop Orders Can Trigger Further Stop Orders

Summary

The document explains how one stop order can lead to additional stop orders being activated. A stop sell order, once triggered, becomes an extra sell order; if it executes and moves the price lower, it may cross the trigger prices of other stop sell orders. Those orders can then add further selling pressure and continue the sequence.

The answer clarifies that this is a finite chain rather than an endless recursive process: each step consumes an available stop sell order, and the number of such orders is finite. The explanation is qualitative and focuses on stop market orders. It does not quantify price impact, describe exchange-specific trigger rules, or analyze how liquidity and order-book structure affect the sequence.

Key ideas

• A triggered stop sell order can become a market sell order and contribute to downward price movement.
• That price movement may trigger additional stop sell orders.
• The chain is finite because each trigger uses an order from a finite set.
• The explanation does not quantify price impact or account for venue-specific rules.

Tags

# What is meant by "a stop order may trigger another stop order?"


# What is meant by "a stop order may trigger another stop order?"












I came across this phrase today in my studies without examples, so I am unclear what the meaning is. This is in the context of stop market orders.

Is it referring to the scenario where, say, some order gets filled in the market, and this filled order in turn triggers one of more stop orders in the order book, which in turn turn into market orders, which in turn may trigger additional stop orders which in turn turn into market orders,.....,and so on? In other words, it seems there is some mutual recursion going on here and you can end up in some (finite) cycle?

## Answer by Stack Exchange Broke The Law (score 3)

https://quant.stackexchange.com/a/66506

If a stop order triggers (let's say a stop sell order) it adds an additional sell order which, if executed, can push the price down which can trigger more stop sell orders.

There is no possibility that it could go on forever, since each step uses up a stop sell order and there are only a finite number of stop sell orders.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.