Stop-Limit Order

AAA

DEFINITION of 'Stop-Limit Order'

An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.

INVESTOPEDIA EXPLAINS 'Stop-Limit Order'

The primary benefit of a stop-limit order is that the trader has precise control over when the order should be filled. The downside, as with all limit orders, is that the trade is not guaranteed to be executed if the stock/commodity does not reach the stop price.

A stop order is an order that becomes executable once a set price has been reached and is then filled at the current market price. A limit order is one that is at a certain price or better. By combining the two orders, the investor has much greater precision in executing the trade. Because a stop order is filled at the market price after the stop price has been hit, it's possible that you could get a really bad fill in fast-moving markets.

For example, let's assume that ABC Inc. is trading at $40 and an investor wants to buy the stock once it begins to show some serious upward momentum. The investor has put in a stop-limit order to buy with the stop price at $45 and the limit price at $46. If the price of ABC Inc. moves above $45 stop price, the order is activated and turns into a limit order. As long as the order can be filled under $46 (the limit price), then the trade will be filled. If the stock gaps above $46, the order will not be filled.

VIDEO

Loading the player...
RELATED TERMS
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches ...
  2. Limit Order

    An order placed with a brokerage to buy or sell a set number ...
  3. Trailing Stop

    A stop order that can be set at a defined percentage away from ...
  4. Stop Hunting

    A strategy that attempts to force some market participants out ...
  5. Hard Stop

    A price level that, if reached, will trigger an order to sell ...
  6. Buy Stops Above

    A recommendation to buy a specific security when a the security's ...
RELATED FAQS
  1. Are stop limit orders for stocks only?

    Stop-limit orders are one of the two kinds of stop losses, the other being standard stop orders. Like normal stop orders, ... Read Full Answer >>
  2. What are some ways to reduce downside risk when holding a long position?

    A trader seeking to minimize his downside risk in an existing long position can do a number of things to protect a portion ... Read Full Answer >>
  3. How do I determine where to set my stop loss?

    Determining stop-loss order placement is all about targeting an allowable risk threshold. This price should be strategically ... Read Full Answer >>
  4. What types of investors are best-suited for stop loss orders?

    From conservative investors to highly speculative day traders, no one likes to see a loss in a portfolio. There are several ... Read Full Answer >>
  5. What are the advantages of a limit order over a market order?

    The primary advantage of a limit order over a market order is that the limit order guarantees market entry at the trader's ... Read Full Answer >>
  6. Why is the execution of a limit order not guaranteed?

    A limit order is a great way to purchase a stock at a predetermined price point without needing to watch the price all the ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Trailing-Stop Techniques

    The important decision to exit a position must be based on more than emotion if you want to be a disciplined trader.
  2. Options & Futures

    Trailing-Stop/Stop-Loss Combo Leads To Winning Trades

    Combine trailing stops with stop-loss orders to reduce risk and protect portfolio value.
  3. Options & Futures

    Forget The Stop, You've Got Options

    Using options instead of stop-loss orders adds finesse and control in limiting losses.
  4. Forex Education

    How To Place Orders With A Forex Broker

    Learn how to set each type of stop and limit when trading currencies.
  5. Active Trading Fundamentals

    The Basics Of Trading A Stock

    Taking control of your portfolio means knowing what orders to use when buying or selling stocks.
  6. Options & Futures

    Maximize Profits With Volatility Stops

    Find out which type of volatility stop fits your trading objectives.
  7. Options & Futures

    Protect Yourself From Market Loss

    There are several simple strategies you can use to protect yourself from downside risk.
  8. Active Trading Fundamentals

    Limiting Losses

    It is impossible to avoid them completely, but there is a systematic method you can use to control them.
  9. Active Trading Fundamentals

    The Stop-Loss Order - Make Sure You Use It

    It's a simple but powerful tool to help you implement your stock-investment strategy. Find out how.
  10. Trading Strategies

    Making The Trade: Understand Order Types

    Buying and selling stock can be a lot like buying or selling a car. Traders should use and understand tools such as market orders, limit orders, day orders, and good-'til-canceled orders to ensure ...

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center