Stop-Limit Order
IntermediateA stop-limit order combines a stop order and a limit order. When the stop price is reached, it becomes a limit order that will be filled only at the limit price or better.
A stop-limit order has two prices. The stop price triggers the order. The limit price sets the worst price at which the investor is willing to trade.
For example, an investor holding a share bought at 40 might place a sell stop-limit order with a stop of 36 and a limit of 35. If the price falls to 36, a sell limit order at 35 is activated. The shares will be sold only at 35 or higher.
This protects against selling at a very poor price during a sudden crash, which is a weakness of a plain stop order. If the share gaps down to 31 overnight, the stop-limit order will not sell at 31, because that is below the 35 limit.
The trade-off is that the order may not be filled at all. If the price falls quickly through the limit and keeps falling, the investor still holds the shares and could face larger losses. Stop-limit orders therefore suit investors who care more about price control than about guaranteeing a sale.
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