Final answer:
An order that becomes a market order once a specified price is attained is known as a stop order. It is used to buy or sell securities to limit an investor's loss.
Step-by-step explanation:
In stock market trading, a stop order, commonly referred to as a stop-loss order, is a risk management tool utilized to limit potential losses on a security position. This type of order becomes a market order to buy or sell securities once a specified price is attained or surpassed. The purpose is to protect investors from significant losses by automatically triggering the sale of a security when its price falls to a predetermined level.
In contrast, a market order is executed immediately at the best available price, while a limit order allows investors to specify the desired buying or selling price. An immediate or cancel order requires instant execution, and any unfilled portions are canceled. The strategic use of stop orders in stock trading reflects an investor's proactive approach to risk mitigation and portfolio management.