How are stop orders triggered?

Stop orders are designed to become market orders when a specified price level is reached, which ensures that they can be executed in a timely manner once the market moves past that point. The correct answer describes how these orders are specifically triggered by the last traded price.

When a stop order is placed, it includes a designated price known as the "stop price." If the market price reaches this stipulated stop price, the order converts into a market order. This mechanism is particularly useful for traders looking to enter or exit positions in specific market conditions. The last traded price is the most significant metric because it reflects the most recent transaction in the market, providing a reliable indicator for triggering orders.

The other options do not accurately describe how stop orders function. For instance, while the best bid or ask limit and auction prices are important in market dynamics, they do not determine the activation point for stop orders. Additionally, the idea that all buy and sell stop orders with the same stop limit are triggered simultaneously does not capture the independent nature of order triggering based on individual price conditions at distinct market moments.