Stop-Limit Order
An order that becomes an ordinary limit order once a specified stop price is reached, combining a stop-loss trigger with a limit order's precise price control.
A stop-limit order combines two separate prices: a stop price, which triggers the order once the market reaches it, and a limit price, which the resulting order will not execute worse than. Once the stop price is hit, the order converts into an ordinary limit order (see Kaavon's "Limit Order" glossary definition) placed at the specified limit price, rather than becoming a market order that would execute immediately at whatever price is available.
This differs from a simple stop-loss order (see Kaavon's "Stop-Loss Order" glossary definition), which converts into a market order once triggered, guaranteeing execution but not the price — a stop-limit order instead guarantees the price won't be worse than the specified limit, but doesn't guarantee the order will execute at all, since if the market gaps or moves quickly past the limit price without trading back through it, the stop-limit order can be left unfilled entirely while the price continues moving away.
Examples
- A trader using a stop-limit order to sell might set a stop price to trigger the order and a slightly lower limit price, accepting some execution-price flexibility in exchange for a guaranteed worst-case price.
- In a fast-moving, gapping market, a stop-limit order can fail to execute at all if the price moves straight past the limit price without trading back through it, unlike a stop-loss order that would still fill at the available market price.