A stop-limit order is a specific instruction given to a broker to purchase or sell a security once its price reaches a designated level. This allows investors to safeguard themselves from abrupt market changes by establishing a predetermined price. It can be utilised for both buying and selling securities and is only carried out when the price hits the specified level. It is also referred to as a stop-loss order or stop-limit order.
A stop-limit order is a combination of a stop order and a limit order in the stock market. It allows investors to set a specific price at which they want to buy or sell a stock. For example, if an investor owns shares of XYZ stock currently trading at $50 per share and wants to sell them if the price drops to $45, they can place a stop-limit order with a stop price of $45 and a limit price of $44. If the stock price falls to $45, the order becomes active, and the broker will try to sell the shares at $44 or better. If the stock price drops below $44, the order will not be executed, and the investor will continue to hold the shares. Similarly, an investor can use a stop-limit order to buy shares of ABC stock if the price drops to $20. They can set a stop price of $20 and a limit price of $21. If the stock price falls to $20, the order becomes active, and the broker will try to buy the shares at $21 or lower. If the stock price rises above $21, the order will not be executed, and the investor will not buy the shares. Stop-limit orders are beneficial for limiting losses or protecting gains, especially in volatile markets with rapid stock price fluctuations.
A stop-limit order is a type of order placed by an investor to buy or sell a security at a specified price or better, but only after a certain stop price has been reached.
When the stop price is reached, the stop-limit order becomes a limit order, and the investor’s broker will attempt to execute the order at the specified limit price or better. If the limit price cannot be met, the order may remain unexecuted.
Yes, you can cancel a stop-limit order as long as it has not been executed. Once the order has been executed, it cannot be canceled.
Yes, there are risks associated with stop-limit orders. If the stop price is reached but the limit price cannot be met, the order may remain unexecuted, leaving the investor exposed to potential losses.
It depends on the specific rules of the exchange or trading platform. Some exchanges allow stop-limit orders to be placed outside of regular trading hours, while others do not.
Stop-limit orders can generally be placed on any security that is traded on an exchange or trading platform. However, it is always advisable to check with your broker or trading platform for any specific restrictions.
Yes, you can change the stop or limit price of a stop-limit order as long as it has not been executed. Once the order has been executed, the stop and limit prices cannot be changed.
The fees associated with placing a stop-limit order may vary depending on your broker or trading platform. It is advisable to check with them for any applicable fees.
Yes, you can place a stop-limit order for a short sale. The process and mechanics of the order remain the same as for a regular stop-limit order.
Yes, there are alternative order types such as market orders, limit orders, and trailing stop orders. Each order type has its own advantages and disadvantages, so it is important to understand them before making a decision.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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