What is The Stop-Limit Function and How to Use It

What is a stop-limit order?

A stop-limit order is a type of limit order that incorporates both a trigger price and a limit price. When the trigger price is attained, the system will activate the placement of the limit order on the order book. Subsequently, when the limit price is reached, the limit order will be executed.

• Trigger price: Once the asset's price reaches the trigger price, the stop-limit order is triggered, and the asset is bought or sold at the specified limit price or a more favorable one.
• Limit price: The designated price, or a potentially more advantageous one, at which the stop-limit order is executed.

You have the option to set the trigger price and limit price at the same value. However, it is advisable to slightly increase the trigger price for sell orders above the limit price. This price difference provides a safety gap between the order triggering and its execution. Conversely, for buy orders, setting the trigger price slightly below the limit price reduces the risk of your order not being fulfilled.

Keep in mind that once the market price reaches your limit price, your order will be executed as a limit order. If you set the stop-loss limit too high or the take-profit limit too low, there is a possibility that your order may never be filled because the market price might not reach the specified limit price.

How does a stop-limit order work?

At the current price of 2,400 (A), you have the flexibility to set the trigger price either above the current price, for example, at 3,000 (B), or below it, for instance, at 1,500 (C). When the price rises to 3,000 (B) or declines to 1,500 (C), the stop-limit order will activate, and the limit order will be automatically added to the order book.

Note: 

• For both buy and sell orders, the limit price can be positioned either above or below the trigger price. For instance, you can set a trigger price B alongside a lower limit price B1 or a higher limit price B2.
• It's important to note that a limit order remains inactive until the trigger price is triggered, even if the limit price is reached before the trigger price.
• Once the trigger price is reached, it simply signifies that the limit order is activated and will be placed on the order book. However, the execution of the limit order will follow its own predetermined rules and will not be immediately filled.