The cost at which a buy or sell order gets activated for execution on the exchange (NSE or BSE) is known as the trigger price. Simply put, once the price of your stock reaches the trigger price decided by you, then the order is sent to the Exchange.
In case of a stop loss order, a stop-loss trigger price needs to be defined while placing the order. The stop-loss (square-off) order gets placed on the Exchange as soon as the defined trigger price is breached.
In case of a Buy order, the stop-loss trigger price is lower than the Buy price.
In case of a Sell order, the stop-loss trigger price is higher than the Sell price.
Trigger price is the price at which your buy or sell order becomes active for execution at the exchange servers. In other words, once the price of the stock hits the trigger price set by you, the order is sent to the exchange servers.
After the stop-loss order has been triggered, the limit price is the price at which your shares will be sold or bought.
The stop loss (SL) order has two price components to it.
Please refer to the below example for a clear understanding.
Once the stock price hits Rs 206/-, your order will become active, i.e. your order will be triggered, and a limit order of Rs 208/- will be sent to the exchange. So the stock will be bought either at Rs 208/- or lower than that provided sellers are available at that price point.
A stop-loss order is a passive order. To activate it, we need to enter a trigger price. Above or below the stop-loss price, a trigger price acts as a price threshold, and only after crossing this price does the stop-loss order change from a passive order to an active order.
Note: A stop-loss order is valid only for a trading day. If your stop-loss order is not triggered during the trading day, it shall lapse automatically at the end of the trading session.