Stop Limit Order
A stop order that becomes a limit order instead of a market order when triggered.
Also called: stop limit
In plain language
A stop limit has two prices: the stop, which arms the order, and the limit, which caps how bad a fill you will accept.
It solves the slippage problem and creates a worse one. If price blows straight through your limit, the order sits unfilled while the position keeps losing.
It is well suited to entries, where missing a fill is merely disappointing, and poorly suited to protective exits, where not filling is the disaster.
Why it matters
On a protective stop you are choosing between a bad fill and no fill. In a genuine crash, no fill is far more expensive.
Common mistakes
- Using a stop limit as a protective stop and being left holding a position through a gap.
- Setting the limit price identical to the stop price, which makes a fill unlikely in a fast move.
Keep exploring
These concepts are connected. Understanding one usually makes the next one easier.
A dormant order that becomes a market order once price reaches a trigger level.
A predefined exit that closes a losing trade before the loss becomes serious.
An order to buy or sell at a specified price or better — it may not fill at all.
The difference between the price you expected and the price you actually got.
A jump between one period’s close and the next period’s open with no trading in between.