Stop-Limit Order Overview, How It Works, Uses, Risks


If the trade doesn’t execute, then the investor may only have to wait a short time for the price to rise again. A stop-loss order would be appropriate if, for example, bad news comes out about a company that casts doubt upon its long-term future. In this case, the stock price may not return to its current level for months or years . Investors would, therefore, be wise to cut their losses and take the market price on the sale. A stop-limit order may eventually yield a considerably larger loss if it does not execute.

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Imagine that BNB is currently at $300 , and you’d like to buy when it starts to enter a bullish trend. However, you don’t want to pay too much for the BNB if it quickly begins to rise, so you need to limit the price you’ll pay. I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. Specify the ticker, the number of shares they wish to apply the stop-limit on, and then the direction of the trade.

Stop Limit Order – Options

When a trader makes a stop-limit order, the order is sent to the public exchange and recorded on the order book. The order remains active until it is triggered, canceled, or expires. When an investor places a stop-limit order, they are required to specify the duration when it is valid, either for the current market or the futures markets. Stop-limit orders effectively build a limit price requirement atop a normal stop-loss order. Stop-loss orders involve buy trades being triggered as a security’s price is rising, or sell trades being triggered as a security is dropping in price.

What is a stop-limit order?

A stop-limit order combines a stop-loss order and a limit order. With this type of order, you specify a stop price that is either above or below the current market price, depending on whether you are buying or selling. If the security’s price hits the stop price, the stop-limit order triggers a limit order. The trade will then execute as long as it can be filled at the limit order price or better.

A trailing stop limit order is designed to allow an investor to specify a limit on the maximum possible loss, without setting a limit on the maximum possible gain. A SELL trailing stop limit moves with the market price, and continually recalculates the stop trigger price at a fixed amount below the market price, based on the user-defined „trailing” amount. The limit order price is also continually recalculated based on the limit offset. A „Buy” trailing stop limit order is the mirror image of a sell trailing stop limit, and is generally used in falling markets. Here’s an example of what can happen if you set a stop orderwithouta limit price.

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A stop-limit order does not guarantee that a trade will be executed if the stock does not reach the specified price. If the stock price has dropped sharply, and a sell order cannot be executed at $58.50 or higher, the 100 shares of XYZ will remain unsold. At this point the trade order would effectively be stop-loss order. To make the order a stop-limit, the investor will need to also specify a stop-limit price on the trade order screen. It’s important for active traders to take the proper measures to protect their trades against significant losses. An order is an investor’s instructions to a broker or brokerage firm to purchase or sell a security.

If he had not placed the stop order, his trade would now be worth $800 – a loss of $1,200 from the initial amount. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. In addition, IB offers adjustable trailing stop limit orders, which allow you to define a one-time change to the trailing amount or the limit price. Using stop-limit orders as part of your investment strategy is one way to have greater control over how you invest and at what cost. You can set limits for both buying and selling and set parameters for executing orders on your terms.

Why Do Traders Use Stop-Limit Orders?

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Here’s what to know about this conditional trade type and how it’s used. They combine the features of a stop order and a limit order. Patterns are just one variable to consider before entering a trade. But the right tools that can help you manage it all every day — like the StocksToTrade platform.

  • When considering which stocks to buy or sell, you should use the approach that you’re most comfortable with.
  • This is for informational purposes only as StocksToTrade is not registered as a securities broker-dealeror an investment adviser.
  • It tracks positive market movements on the instrument on which it is placed.
  • For example, continuing with the above example, let’s assume ABC stock never drops to the stop-loss price.
  • Selecting the right order type is just one piece of the puzzle when it comes to trading smart.

Investors often use stop limit orders in an attempt to limit a loss or protect a profit, in case the stock moves in the wrong direction. It’s smart to set stop-limit orders where you expect other traders to buy and sell. These levels are often major support and resistance levels or previous key swing highs and lows.

What is an example of a stop-limit order used for a short position?

With any of these four situations, you can use a simple stop-buy or stop-sell order. But if the trading volume’s thin, you can end up paying way too much or selling for way too little. Alternatively, you may only want the order filled in that day’s trading session. In that case, you’d use a day order to tell the exchange to cancel the order if it isn’t filled by the end of the day. In this example, $9 is the stop level, which triggers a limit order of $9.50. Interactive Brokers may simulate certain order types on its books and submit the order to the exchange when it becomes marketable.

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Thanks to their automatic nature, stop-limit orders can keep your trading going without much of your involvement. Although, it won’t be the case if the market is not stable at that moment. Stop-loss orders get executed as a market order after the price reaches the desired level specified by the trader. That’s why the limit feature of the stop-limit order adds flexibility that allows traders not to lose the growing opportunities when the market conditions are better than expected. Let’s say you have a stop price of $50 on a sell stop limit order and your limit price is $45. If market conditions are appropriate and the price of a stock reaches $50 it would trigger a limit order that would only activate at the limit price of $45 or better.

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At the lowest possible is a security trading designation instructing a broker to execute a buy order for the smallest amount that can be found. A limit order is used to buy or sell a security at a pre-determined price and will not execute unless the security’s price meets those qualifications. A stop-loss order assures execution, while a stop-limit order ensures a fill at the desired price. The decision regarding which type of order to use depends on a number of factors. The primary benefit of a stop-limit order is that the trader has precise control over when the order should be filled.

  • If the stock falls at or below this price, it triggers a market sell order.
  • I wrote this article myself, and it expresses my own opinions.
  • Once you set a stop-limit order and the trigger price is reached, a limit order will be placed automatically, even if you are logged out or offline.
  • Stop orders can get filled at worse prices than stop-limits, while limit orders are not that good when you aim at the price range that is yet to show up in the charts.
  • Partial fills may occur when only a part of the shares in the stock order is executed, leaving an open order.

Investors set a stop-limit order by placing the stop price where they want the order to trigger and a limit price where they would like a trade execution. If the security reaches the specified trigger price, the limit order activates and executes if the price is at or better than the price specified by the investor. Most online brokers offer stop-limit orders with a day-only or GTC expiry. On the other hand, a sell stop limit order is helpful when the trader’s intention is to protect the gains or limit the losses on the owned stocks. Once the share price reaches the stipulated stop price, the broker will execute the limit order. As such, the share will be sold at/above the set limit price.


Stop-loss orders and stop-limit orders are two tools for accomplishing this. However, it is critical to understand the difference between these two tools. Stop-limit orders enable traders to have precise control over when the order should be filled, but they are not guaranteed to be executed. A stop-limit order is a conditional trade over a set time frame that combines the features of stop with those of a limit order and is used to mitigate risk.

If this service is not offered by the how to set stop limit for free, the commission is likely to be high. Requires a good understanding of price determination practices to know where to set the stop price. DTTW™ is proud to be the lead sponsor of TraderTV.LIVE™, the fastest-growing day trading channel on YouTube.

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Your broker will buy up to 1,000 shares at any price under $8.20. The risk of loss in online trading of stocks, options, futures, currencies, foreign equities, and fixed Income can be substantial. If the price of XYZ falls to your Stop Price of 14.10, a limit order to sell 200 shares at a limit price of 14.00 will be submitted. A stop-limit order is a powerful tool that can provide you more trading capability than simple market orders. There is also the added benefit of not needing to be actively trading for the order to complete. By combining multiple stop-limit orders, it’s easy to manage your holdings whether the price falls or rises.

After hours quotes made outside of regular trading hours can differ significantly from quotes made during regular trading hours. Stop orders configured to trigger outside of regular NYSE trading hours with a trigger method set to Bid/Ask may trigger in illiquid markets and/or on quotes with wide bid/ask spreads. For example, you could use a buy stop-limit order with a stop price just above an important resistance level to take advantage of a breakout. Or a sell stop-limit order just below a support level to make sure you get out before the market drops further.

This can incur a substantial loss, especially in a fast market, if the order is not executed before the market price drops past the limit price. When a stock drops below the stop price, a limit order is prompted. If the price remains within the defined limit, a sell order is triggered but not executed. Once the price drops below the limit, no sell order would be triggered.