Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders


However, the trader has a situation that he has to attend to thus making it difficult for him to monitor his trade. You are at risk of other investors taking out your stop levels. There is always the risk of other investors taking out your stop levels. Enter the ticker in the Order Entry panel and select the Buy button. The existing position is automatically displayed and by clicking on the Position field, the user can auto-populate the Quantity field.

If the stock price falls below $45 before the order is filled, then the order will remain unfilled until the price climbs back to $45. A short position would necessitate a buy-stop limit order to cap losses. For example, if a trader has a short position in stock ABC at $50 and would like to cap losses at 20% to 25%, they can enter a stop-limit order to buy at a price of $60 and a limit price of $62.50. If the stock trades at a price of $60 to $62.50, then the stop-limit order will be executed, capping the trader’s loss on the short position in the desired 20%–25% range. However, if the stock gaps up—say, to $65—then the stop-limit order will not be executed and the short position will remain open.

Say that Pear company is trading at $100, and you want to buy once it begins to trend upward. So you put in a stop-limit order at $105 and set the limit price at $110. If the price of Pear stock moves above the $105 stop-limit price, then the order will be activated and becomes a limit order. If the order can be executed for below the $110 limit order, it will be filled.

Stop Orders: Mastering Order Types

Once you set a stop-limit order and the trigger price is reached, a limit order will be placed automatically, even if you are logged out or offline. You can strategically place stop-limit orders by considering resistance and support levels and the asset’s volatility. A stop-limit order is a tool that traders use to mitigate trade risks by specifying the highest or lowest price of stocks they are willing to accept. The trader starts by setting a stop price (order to buy or sell a stock once the price’s reached a specific point), and a limit price .

Why use a stop-limit order?

A stop-limit order enables investors to set conditions for how they want their trades to be executed. With this type of order, you specify a price you are willing to pay instead of accepting the current market price. As a result, your trades will only be filled if the stock matches your defined price.

Once the share price reaches the stipulated stop price, the broker will execute the limit order. As such, the share will be sold at/above the set limit price. Here’s an example of what can happen if you set a stop orderwithouta limit price. Your analysis suggests that if the price falls to $98, it could continue to move lower. With the intention of limiting your downside risk to $2, you set your stop at $98. The stock closes at $100, but due to a disappointing after-market earnings announcement, the stock opens the next day at $90.

Why Traders Use Stop-Limit Orders

No to buy securities can be accepted, and no part of the purchase price can be received, until an offering statement filed with the SEC has been qualified by the SEC. An indication of interest to purchase securities involves no obligation or commitment of any kind. The stock market is unpredictable, and making intelligent decisions can take some time and experience. It’s essential to understand the basics before issuing any type of order.

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Investors often use stop limit orders in an attempt to limit a loss or protect a profit, in case the stock moves in the wrong direction. There will be situations where your stop gets triggered, but liquidity is so thin that the market trades straight through your limit price. Imagine that same situation, only this time you use a stop-limit order. You still want to sell 100 XYZ shares if the price drops to $10. Although the stop and limit prices can be the same, this isn’t a requirement.

Once the price drops below the limit, no sell order would be triggered. A buy-stop order instructs the broker to purchase a security once its price hits the stop price, which is set at a level above the current market price. This guarantees that the investor pays the specified price or even less. A stop-loss order, also known as a stop order, sets a threshold for an investor’s loss on a security position. The order is placed with a broker to either buy or sell a stock once it hits a specific price – known as the stop price, a threshold that triggers the execution of a stop-loss order. A stop-limit order lets you customize and plan out your trades.

In fact, it would be safer for you to set the stop price a bit higher than the limit price for sell orders. For buy orders, you can set the stop price a bit lower than the limit price. This increases the chances of your limit order filling after it triggers.

That can help busy receive a better fill without having to actively watch the order book. With any of these four situations, you can use a simple stop-buy or stop-sell order. But if the trading volume’s thin, you can end up paying way too much or selling for way too little. You can use the order to exit your long position if the price declines.

This type of order can be super helpful for day traders and swing traders who can’t watch the markets all day. And they can be especially useful for stocks with thin trading volume, such as penny stocks. For example, if the market price of Bitcoin is $32,000 , you could set a buy limit order at $31,000 to purchase BTC as soon as the price hits $31,000 or lower. You might also place a sell limit order at $33,000, meaning that the exchange will sell your BTC if the price goes to $33,000 or higher.


A stop order used to limit a loss is called a stop-loss order. When an investor wants to implement a stop-limit order, they must make 4 decisions. These limits serve as barricades to help you from overpaying for stock or losing too much in a downturn. Pulse Empowering companies to connect with their retail investors. Trading 212 Markets Ltd. is authorised and regulated by the Cyprus Securities and Exchange Commission (License number 398/21).

  • This difference accommodates market price changes between the time the stop price triggers and the limit order is placed.
  • You can use the order to exit your short position if the price rises.
  • Then, the limit order is executed at your limit price or better.
  • An investor can avoid the risk of a stop order executing at an unexpected price by placing a stop-limit order.
  • It is only executable at times when the trade can be performed at the limit price or at a price that is considered more favorable than the limit price.
  • For example, if an investor specifies the validity period to be one day, the order will expire at the end of the market session if it is not triggered.

Now we’ve studied stop-limit orders, what’s the best way to use them? Here are some basic trading GMT strategies to increase the effectiveness of your stop-limit orders and avoid some of their disadvantages. Liquidity can also be a problem if there aren’t enough takers to fill your order. If you’re worried about your orders only partially filling, consider using fill or kill. This option specifies that your order should only execute if it can be filled completely.

This will occur if you sell part of the shares at the stop price, but then the price quickly falls below your limit level. Consider the following scenario; a trader purchases the shares of company X at the price of $10 per share. Stop-loss orders are especially useful in CFD trading because they give the broker instruction to close all positions unprotected in the market.

This type of order is an available option with nearly every online broker. The most significant benefit of a stop-limit order is that the traders can protect themselves from large price movements that could render a trade unprofitable. In order to protect your trades from volatility in the market, stop-limit orders offer an extra layer of risk mitigation by allowing you to specify an exit price. Favorable means higher if you are selling and lower if you are buying.

Before trading, clients must read the relevant risk disclosure statements on our Warnings and Disclosures page. Trading on margin is only for experienced investors with high risk tolerance. For additional information about rates on margin loans, please see Margin Loan Rates. Security futures involve a high degree of risk and are not suitable for all investors.

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Stop-limit orders can guarantee a price limit, but the trade may not be executed. This can saddle the investor with a substantial loss in a fast marketif the order does not get filled before the market price drops through the limit price. Both types of orders can be entered as either day orders or good-’til-canceled orders.

All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. Stop-Limit Orders are primarily intended to serve as a protection against market gaps. You place a sell trailing stop order with a trailing stop price of $1 below the market price. As with stop orders, different brokerage firms may have different standards for determining whether the stop price of a stop-limit order has been reached. Some brokerage firms use only last-sale prices to trigger a stop-limit order, while others use quotation prices. Investors should check with their brokerage firms to determine which standard would be used for stop-limit orders.

If the shares are highly illiquid, consider lowering the size of your position as a risk management approach. If the price of XYZ falls to your Stop Price of 14.10, a limit order to sell 200 shares at a limit price of 14.00 will be submitted. Stop loss and stop limit orders are commonly used to potentially protect against a negative movement in your position. Learn how to use these orders and the effect this strategy may have on your investing or trading strategy. To safeguard himself from buying at such an unfavorable price, he will have to combine Stop Order with a Limit order, limiting the buying price to a range, say he puts a limit order at $215.

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A stop-limit order refers to a conditional order type used by investors and traders to mitigate risk. The order, which combines the features of both a stop and limit order, provides more precision over the desired execution price, helping to lock in profits and limit losses. Investors set a stop-limit order by placing the stop price where they want the order to trigger and a limit price where they would like a trade execution. If the security reaches the specified trigger price, the limit order activates and executes if the price is at or better than the price specified by the investor. Most online brokers offer stop-limit orders with a day-only or GTC expiry.

Which is better stop limit or trailing stop?

The trailing stop is preferred over the stop limit because there's protection against very fast swings. Since there's a trailing stop set for the end of day, the presence of these cases are already much more minimized. At the end of the day, a loss is a loss.

If the how to use stop limit falls to your stop price, it triggers a sell limit order. Also, once your stop order becomes a limit order, there has to be a buyer and seller on both sides of the trade for the limit order to execute. If there aren’t enough shares in the market at your limit price, it may take multiple trades to fill the entire order, or the order may not be filled at all. The trailing stop-limit order works the same as the trailing stop-loss, but with a limit order attached to it.


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