what is a stop limit order?

Question

when selling a stock at stop price 5.03 and a limit price 5.01, where exactly will I sell my stock?

when selling a stock at limit 5.01and stop 5.03 where exactly will I sell, why, how does it work?

Answer 1

Great question.

Stop loss will sell your stock when the price hits the stop loss number or below.

Stop limit will submit a limit order to sell your stock when the price gets to your stop limit price.

This is CRUCIAL to know.

Using your example, you have a stop loss at 5.03 and a stop limit for 5.01.

If the stock drops slowly to 5.03, then 5.02, then 5.01, then both orders will be filled. Your stop loss will be filled at 5.03 and your stop limit at 5.01 (assuming there's enough buy volume to fill your limit order)

However, if the stock gaps down (which frequently happens on news) and opens at say 4.50. Your stop loss order will fill at the ask price just after open. And your stop limit for 5.01 will be submitted. If the stock continues to go down and closes at 4.00, your order will not fill. Your order will sit there until it's cancelled or until the bid price goes back up to 5.01!

So, as you can see, there are very important differences between the two. Each has pros and cons. Just be aware of them as you place your order.

Hope that helps!

Answer 2

Essentially a stop and a limit is the same thing - hence the stop limit order.

Now as for the question where you sell sell your stock... It depends what the market price is doing at the moment.

Say you've put through the two orders. The price is currently at $5.04 and then the price nudges down one cent to 5.03. Your order is now triggered.

Another case: Now the market is at 5.04 again. The price skips 5.03 and falls instantly to 5.01 - there you are triggered.

Finally, if the market is highly volatile and slips 10 cents, then non of your orders will be executed. (the catch is if your stop is a Guranteed stop loss - to which you paid an extra premium to the broker for that right)

And for completeness...

"A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is reached, the stop-limit order becomes a limit order to buy or to sell at a specified price.

The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed. But, as with all limit orders, a stop-limit order may never get filled if the stock's price never reaches the specified limit price. This may happen especially in fast-moving markets where prices fluctuate wildly.

The use of stop limit orders is much more frequent for stocks that trade on an exchange than in the over-counter (OTC) market. In addition, your broker-dealer may not allow you to place a stop limit order on some securities or accept a stop limit order for OTC stocks. Before you enter into this type of order, you should speak to your broker or financial advisor about how the order works.

For more information on the different types of orders you can place when you buy or sell a stock, please read "Brokerage Orders" in our Fast Answers databank. "

Answer 3

A stop-limit order is an order to buy or sell a stock that combines the features of a stop order and a limit order. Once the stop price is reached, the stop-limit order becomes a limit order to buy or to sell at a specified price.

The benefit of a stop-limit order is that the investor can control the price at which the trade will get executed. But, as with all limit orders, a stop-limit order may never get filled if the stock's price never reaches the specified limit price. This may happen especially in fast-moving markets where prices fluctuate wildly.

The use of stop limit orders is much more frequent for stocks that trade on an exchange than in the over-counter (OTC) market. In addition, your broker-dealer may not allow you to place a stop limit order on some securities or accept a stop limit order for OTC stocks. Before you enter into this type of order, you should speak to your broker or financial advisor about how the order works.

For more information on the different types of orders you can place when you buy or sell a stock, please read "Brokerage Orders" in our Fast Answers databank.

http://www.sec.gov/answers/stoplim.htm

Answer 4

(m)


An order to buy or sell a certain quantity of a certain security at a specified price or better, but only after a specified price has been reached. A stop-limit order is essentially a combination of a stop order and a limit order.

Answer 5

5.01, 5.02, or 5.03