Trigger price
The price at which a stop-loss order is activated and enters the market as a market or limit order — set between the last traded price and the order's own limit price.
In plain language
A stop-loss order does not sit in the market from the moment it is placed. It waits, inactive, until the price crosses a level the trader has chosen — and only then does it spring into action.
That level is the trigger price. Once the market price climbs above (or drops below) the trigger price, the stop-loss order activates and enters the market as either a market order or a limit order, exactly as the trader specified when placing it.
How it works
Chapter 6, section 6.1, works through the mechanics: a stop-loss order is an order to buy (or sell) once the security's price climbs above (or drops below) a trigger price. When a limit stop-loss order is placed, it carries both a trigger price and a separate limit price, and the trigger price must lie between the last traded price and the limit price. Once the market breaches the trigger price, the order converts into a limit order at the specified limit price — it does not simply execute at the trigger price itself.
A worked example
A trader buys ABC Ltd shares at Rs 100, expecting the price to rise. To cap his downside, he places a limit sell order with a trigger price of Rs 95 and a limit price of Rs 92.
As long as ABC trades above Rs 95, this order sits inactive. The moment ABC's price breaches Rs 95, the order activates and converts into a limit sell order at Rs 92 — it does not necessarily execute at exactly Rs 95, only at Rs 92 or better, since it is now a limit order in the book, waiting for a buyer at that price.
Why NISM asks about it
Chapter 6, section 6.1, defines the stop-loss order and trigger price together, with the ABC Ltd worked example of a Rs 95 trigger and Rs 92 limit. Expect a question testing whether the trigger price must sit between the last traded price and the limit price, and what happens once it is breached.
Common exam traps
- The trigger price activates the order; it does not fill the order at that price. The order converts into a market or limit order once triggered — execution then depends on the market or the limit price specified.
- For a limit stop-loss order, the trigger price must sit between the last traded price and the limit price when the order is placed — not on the far side of the limit price.
- Trigger price applies to both buy and sell stop-loss orders — a buy stop-loss triggers on a rise above the trigger; a sell stop-loss triggers on a fall below it.
Check yourself
1.A trader has bought 100 shares of XYZ at ₹780 per share. He expects the price to rise but does not want to lose more than ₹1,000 on this long position. What should he do?
- a)Place a limit sell order for 100 shares of XYZ at ₹770 per share
- b)Place a stop-loss sell order for 100 shares of XYZ at ₹770 per share
- c)Place a limit buy order for 100 shares of XYZ at ₹790 per share
- d)Place a limit buy order for 100 shares of XYZ at ₹770 per share
Show the answer
Answer: (b) Place a stop-loss sell order for 100 shares of XYZ at ₹770 per share
The arithmetic is one line: ₹1,000 ÷ 100 shares = ₹10 per share, so the protective level is 780 − 10 = ₹770.
The question is really about order type. He is long, so protection means selling, and it must be an order that waits rather than acting now. Only a stop-loss order does that — it gets activated when the trigger price is reached or crossed, sitting in the stop loss book until then.
Option A is the trap. A limit sell order at ₹770 with the stock at ₹780 is immediately marketable: a limit sell executes at the limit price or better, meaning higher, so it would fill straight away at around ₹780 and close his position on the spot. He wanted to stay long and be protected — a limit sell exits him now, at today's price, defeating the entire purpose.
Options C and D both buy, which cannot protect a long position — it enlarges it. The ₹790 buy would fill immediately above the market; the ₹770 buy would sit waiting to add a second long position at a cheaper price, which is the opposite of a stop-loss.
Where this is taught
Free preparation for NISM Series VIIIRelated terms
- Price-time priorityThe order-matching rule on Indian F&O platforms: the best price is matched first, and among orders at the same price, the one entered earliest gets priority.
- Limit orderAn order to buy or sell a contract at a specified price or better — lower for a buy, higher for a sell — which waits in the order book if it cannot be matched at once.
- Market orderAn order to buy or sell a contract at the best price currently available in the market — no price is specified, so it trades immediately against the opposite side of the order book.