Traders can establish new positions at price levels they believe represent the beginning of a new trend in the same direction, so long as the stop-limit price is not breached.Comes with guarantees: These orders allow investors to guarantee a maximum execution price for buys, and a minimum execution price for sells.Can limit losses if the price of a security moves against an investor's position.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.If shares of XYZ decline to the stop price of $60, the 100 shares of XYZ will be sold as long as a minimum price of $58.50 can be obtained.The investor enters a stop-limit order with a stop price of $60 (20% of $75), and decides to specify a stop-limit price of $58.50. The investor decides they'd like to exit their position if shares of XYZ drop 20% from that level. Let's assume an investor is long 100 shares of XYZ, and that shares are currently trading for $75. A $50 stop price with a $47 limit will have a smaller chance of not executing than a $50 stop price with a $49.50 limit. Tip: Investors can reduce the chances of their stop-limit price being gapped through by leaving a larger buffer between the stop price and the stop-limit price. If the stop price is reached, but the trade cannot be executed at the limit price or better, the trade will not occur.If the stop price is never reached, the stop-limit trade will never execute (and neither would a stop-loss order).Stop-limit orders can remain in place for a long time, and will not execute at all in the below scenarios: Investors can place stop-limit orders that are day orders, good till canceled (GTC) orders, or set specific expiration dates. To make the order a stop-limit, the investor will need to also specify a stop-limit price on the trade order screen. This means that at the time the stop order is placed, the trade would have been available at a better price.Īt this point the trade order would effectively be stop-loss order. The price in a buy-stop order is set above the current market price, while in a sell-stop order, the price is set below the current market price. Then, in the "order type" field, usually where " market order" and "limit order" appear, they can instead choose "stop.".Specify the ticker, the number of shares they wish to apply the stop-limit on, and then the direction of the trade.Access their brokerage's standard trade order screen.To place a stop-limit order, an investor should: Tip: Stop-limit orders guarantee a minimum price (for sell-stops) or a maximum price (for buy-stops) but it's possible the trade will not execute even if the stop price is reached. Since market orders are indiscriminate on price, stop-loss orders almost always result in executed trades once the stop price in reached. Stop-Limit OrderĬompared to a stop-limit, a stop loss order triggers a market order to buy or sell once the stop price is reached. It's possible that the security price gaps through the limit price before the trade can be executed at the limit price or better. At this point the trade will execute as long as it can be filled at the limit order price or better.Īs a result, a stop-limit order does not guarantee execution where the stop price is reached. If the price of the security hits the stop price, the stop-limit order will then trigger a limit order. Like with a stop-loss order, a stop price is specified higher than the current market price for buy-stops, and below the current market price for sell-stops. DNY59/E+ via Getty Images What Is a Stop-Limit Order?Ī stop-limit order combines the features of a stop-loss order and a limit order.
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