What is Stop-Limit Order and how to use it?

A stop-limit order executes as a limit order within a specific price range and not as a simple market order. With a stop-limit, the trader sets a stop price at which the order is triggered and a limit price at which he/she can afford the order to be filled. The order will only execute between the stop and the limit as long as matching trades are available on the book. If the market price surpasses the limit price, the order may not be entirely filled.

Once the stop of a stop-limit order is triggered, the limit order is automatically added to the book. If the market price does not reach the stop price, the order will not be triggered and will remain unfilled. If the stop is triggered and the limit order is placed, but the market price does not reach the limit price, the order will also go unfilled.

If the market price is moving quickly enough and gaps above the limit price, there may not be enough matching trades available between your stop and limit to fulfill the order.

Example: If a trader would like to buy once the market price reaches 100, but not pay more than 102, then a stop price of 100 and limit price of 102 can be set using a stop-limit order. If the market price reaches 100, the order is triggered and will match the best available asks up to 102. If the market price moves to 102.01 or above, then the order may go partially unfilled due to the limit price.