What Is a Stop-Limit Order? Stop-Limit vs. Stop-Market
A stop-limit is an order with two prices: one triggers the order, the other caps the execution price. Here's how it works and what its main risk is.
What it is
A stop-limit is a pending order with two prices:
- Stop price: when the price reaches it, the order is activated.
- Limit price: once activated, a limit order is placed at this price or better.
Example: you bought a coin at $100. You set a stop-limit sell order: stop $95, limit $94. The price drops to $95, and the exchange places a sell order at no less than $94.
Stop-limit vs. stop-market
| Stop-limit | Stop-market | |
|---|---|---|
| After activation | Limit order | Market order |
| Execution price | No worse than the limit | Any available price |
| Risk | May not fill | Possible slippage |
| Best for | Breakout entries with price control | A protective stop-loss |
The main risk
If the price shoots past both the stop price and the limit, the order sits there unfilled while the loss grows. That's why many traders use a stop-market order for a protective stop-loss, and leave a buffer between the stop and the limit on a stop-limit. More on protecting a trade in the article take-profit and stop-loss, and on order types in the article limit vs. market orders.
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- Stop-limit = stop price + limit price.
- It may not fill during a sharp move.
- Always protect a trade with a stop-loss, and choose a type that will definitely trigger.
Frequently Asked Questions
How big a gap should I leave between the stop and the limit?
It depends on the asset's volatility. The sharper the price moves, the bigger the buffer. Too small a gap raises the risk that the order won't fill.
Can I use a stop-limit as a stop-loss?
Yes, but with a buffer between the two prices. If it's important to exit no matter what, a stop-market order is more reliable.
Can other traders see my stop-limit?
Before activation, the order is usually held on the exchange's side and isn't visible in the order book. Once triggered, the limit order appears in the order book.
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