Glossary
Stop-limit order
An order that becomes a limit order once a trigger price trades, giving control over the fill price at the risk of not filling at all.
On this page
A stop-limit order has two prices: a stop that activates it and a limit that caps the price it may fill at. Until the stock trades at the stop price, the order sits dormant. Once it is triggered, it becomes an ordinary limit order. It exists to solve one problem of a plain stop order, which becomes a market order and can fill far from the trigger in a fast move.
How it works
For a sell stop-limit, the stop is set below the current price and the limit at or below the stop. For a buy stop-limit, both are set above the current price, with the limit at or above the stop. The space between the two is the price range you are willing to accept.
The trade-off
A stop-limit swaps execution certainty for price certainty. That is the right choice for someone who would rather miss an exit than sell at a panic price, and the wrong one for someone whose goal is to be out no matter what. Gaps, trading halts and the open are where the difference shows up. Many brokers also do not trigger stops outside regular hours unless you choose that explicitly, so check your firm's rules.