Stop-Limit Order
Definition
A conditional order that combines a stop price trigger with a limit price constraint, converting to a limit order once the stop price is reached rather than executing at any market price.
A stop-limit order addresses the key drawback of a regular stop-loss: in fast-moving markets, a stop-loss converts to a market order and may execute at a much worse price than expected (slippage). A stop-limit order sets both a trigger price and a minimum acceptable execution price.
For example, you own a stock at $100 and set a stop-limit with a stop at $95 and limit at $93. If the price drops to $95, the order activates but will only sell at $93 or higher. If the price gaps down through $93 (opens the next day at $90), the order won't execute — protecting you from selling at a terrible price but leaving you holding a declining position.
This protection cuts both ways. In a flash crash where prices recover quickly, a stop-limit order might not fill (the price moved through your limit too fast), which is actually ideal. In a genuine crash, not filling means you still hold the position as it continues falling — which could be worse than selling at a bad price.
Stop-limit orders are particularly useful for volatile assets like crypto, where sudden wicks can trigger regular stop-losses at unfavorable prices. They're also useful for less liquid stocks where market orders might face significant slippage.
The gap between stop price and limit price is a judgment call. A tight gap ($95 stop / $94.50 limit) has a higher chance of filling but less protection. A wide gap ($95 stop / $90 limit) provides more protection against gaps but allows more slippage within the range.
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Related Terms
Frequently Asked Questions
When should I use a stop-limit vs a stop-loss?
Use stop-limit orders for volatile or illiquid assets where slippage is a concern, or when you'd rather hold a position than sell at a terrible price. Use regular stop-loss orders when guaranteed execution is more important than price — when you absolutely need to exit regardless of price.
What if my stop-limit order doesn't fill?
If the price gaps through your limit, the order remains open as a limit order. You still hold the position, which could continue declining. Monitor unfilled stop-limit orders and decide whether to adjust the limit, place a market order, or hold. Set alerts for gap-through scenarios.