![]() ![]() Next day, the stock opened at $90.Īs the trader had set a stop-limit order, the stop order was triggered, but it did not get executed as the price did not hit the limit of $95. The stock closed at $100, however, an after-hours earnings announcement showed the company’s performance was disappointing, pushing the stock price lower. So, with the intention of limiting downside risk to $2, the trader sets a stop at $98 and places a limit at the minimum price they are willing to sell the shares let’s consider that to be $95. According to their analysis, if the price falls to $98, it could continue to move lower. A trader holds shares of X company at $100 per share. Let’s go through an example for more clarity. Sell stop-limit order – used to sell an asset when its price falls down to a specific level There are two main stop-limit orders that traders can use:īuy stop-limit order – used to purchase an asset if the price hits a specific point This ensures that the order is not executed unless the price is at the limit price or better than the limit price specified by the trader. A trader must then select a timeframe in which the stop-limit order can be executed.Īfter the stop price is triggered, the limit order takes over. The stop price point marks the beginning of a specific price target for the trade, while the limit gives us the outside of the price target. The process requires two price point settings: stop and limit. How do stop-limit orders work?īefore executing a stop-limit order strategy, traders should know what market scenario is needed for it to work. It’s important to note, however, that even with efficient risk management, all trading contains risk. Put simply, for traders a stop-limit order means locking in profits or limiting losses. It is a form of conditional trading that takes place over a specific timeframe and allows traders control over when the order should be executed. ![]() The stop-limit order combines features of a stop-loss and limit order. The tool allows traders to set the highest or lowest asset price that they are willing to accept. Stop-limit order is a core risk management tool used by traders to minimise losses and maximise returns. ![]()
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