Stop limit orders

Stop limit orders are hybrids of limit and stop orders. A stop limit order starts as a stop order, and once it triggers (elects), it turns into a limit order. The key difference between a stop order and a stop limit order is what happens after the trigger.

Stop limit orders are used for the same general purpose as stop orders. They’re often used to help limit losses, especially when you’re concerned about the lack of a price guarantee with a normal stop order. Because the order becomes a limit order after it triggers, you keep a price limit on the execution.

Sell stop limit orders

Let’s look at an example:

Long 100 shares of ABC stock @ $30

Investor places a sell 100 shares of ABC stock @ $25 stop $23 limit

To understand a sell stop limit order, start with the stop price.

• The sell stop triggers when the market falls to or below the stop price ($25).
• After it triggers, the order becomes a sell limit order.
• The sell limit order can fill only if the market price is at or above the limit price ($23).

Long 100 shares of ABC stock @ $30

Investor places a sell 100 shares of ABC stock @ $25 stop $23 limit

Trading tape: $25.03… $25.01… $24.99… $24.98… $24.95…

Here’s what happens step by step:

• The order triggers when the market hits $25 or lower.
• At $24.99, the stop is triggered, and the order becomes a limit order.
• From that point on, the order can execute only at $23 or higher.
• At $24.98, the order executes.

The limit portion ensures the investor won’t sell for less than $23 per share.

Let’s check your understanding of a sell stop limit.

An investor goes long 100 shares of stock @ $70. They place a sell 100 shares @ $65 stop limit order.

Trading tape: $65.10… $64.90… $64.95… $65.05… $64.85

At what price will the order trigger? At what price will the order execute?

Here’s a video that dives further into sell stop limit orders:

Buy stop limit orders

Let’s look at a buy stop limit order:

Sell short 100 shares of ABC stock @ $70

Investor places a buy 100 shares of ABC stock @ $77 stop limit

Again, start with the stop price.

• The buy stop triggers when the market rises to the stop price or higher.
• After it triggers, the order becomes a buy limit order.
• The buy limit order can fill only if the market price is at or below the limit price.

Sell short 100 shares of ABC stock @ $70

Investor places a buy 100 shares of ABC stock @ $77 stop limit

Trading tape: $76.95… $76.99… $77.02… $77.01… $76.98…

Step by step:

• The order triggers when the market reaches $77 or higher.
• At $77.02, the stop is triggered, and the order becomes a limit order.
• From that point on, the order can execute only at $77 or lower.
• At $76.98, the order executes.

The limit portion ensures the investor won’t buy for more than $77 per share.

Let’s check your understanding of buy stop limit orders.

An investor goes short 100 shares of stock @ $25. They place a buy 100 shares @ $28 stop $29 limit order.

Trading tape: $27.97… $28.01… $28.09… $27.90… $27.50…

At what price will the order trigger? At what price will the order execute?

Here’s a video that dives further into buy stop limit orders:

Just like limits and stops, stop limit orders can be day or GTC. If placed as a day order, the order will be canceled if it doesn’t execute by the end of the day. If placed as a GTC order, the order will stay open until it’s executed or canceled by the investor.