A Stop-Limit Order combines the features of a Stop and a Limit Order.
In opposition to a conventional Stop Order which is converted into a Market Order once its Stop target price has been reached, the Stop-Limit order is converted into a Limit order once its Stop price has been met. Then, the newly active Limit order will be executed at its target Limit price or a better one.
Stop-Limit Orders are primarily intended to serve as a protection against market gaps. The Stop and the Limit target prices of the order set a price range of execution and if the price of the security surpasses that range, the Stop-Limit order will remain pending until the price goes back within the set price range.
Therefore, the Stop-Limit orders would be correctly set in the following way:
- Stop-Limit Buy Orders should have the Stop price above the current price of the security and below the Limit price;
- Stop-Limit Sell Orders should have the Stop price below the current price of the security and above the Limit price;
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, while at the same time protecting themselves from undesired rapid price movements. Once activated, Limit Orders will only execute if a specified price can be met for trade-in full, ceasing once the price turns unfavourable.
Stop Limit 'Buy' Orders
Here's how to set one:
- Tap to 'Buy' a share;
- Select the 'Stop Limit' Order type;
- Select the Number of Shares;
- Set the Stop Price. The price should be above the current price to convert the order into a Limit order;
- Set the maximum Limit price you are willing to pay for your share.
The execution of the order will depend first on the 'Stop Price, and thereafter on the 'Limit'.
Stop Limit 'Sell' Orders
Here's how to set one:
- Tap on 'Sell';
- Select the 'Stop Limit' Order type;
- Select Number of Shares;
- Set the Stop Price. The price should be below the current price to convert the order into a Limit order;
- Set the minimum Limit Price for which you are willing to sell a share.
The execution of the order will depend first on the 'Stop Price', and therefore on the 'Limit'.
*The order will remain pending and the funds needed for its execution - blocked, until the price is reached. It cannot be modified unless cancelled and replaced by a new order of the same or a different type.