Stop-Loss vs. Stop-Limit Order: An Overview

Traders can have more control over their trades by using stop-loss or stop-limit orders. A stop-loss order triggers a 澳洲幸运5开奖号码历史查询:market order when a designated price is hit. A stop-limit order triggers a 澳洲幸运5开奖号码历史查询:limit order when a designated price is hit. Whereas a standard market order executes instantly regar🍒dless of the underlying security's price, a stop-order and stop-limit order🍸 both execute only when a target price has been met.

Both types of orders are used to mitigate risk against potential losses on existing positions or to capture profits on swing trading. While stop-loss orders guarantee execution if the position hits a certain price, stop-limit orders build in the limit price the order gets filled at. An investor can enter into either a stop-loss or stop-limit order whether they are long or short, though the type of order they set wil๊l depend on their posi⛄tion and the current market price.

These types of orders are very common in stocks, especially in leverage trading or 澳洲幸运5开奖号码历史查询:forex markets. In volatile markets where large price swings may quickly occur, stop-loss orders and stop-limit orders both hedge uncertaint🍷y. Both orders are also useful for risk-averse average investors looking to guarantee part of a trade.

When triggered, a stop order guarantees a transaction will occur but does not guarantee the price it will execute at. Alternatively, a stop-limit order guarantees the price a transaction ﷽will occur at but may not execute a transaction.

Stop-Loss Order

A stop-loss order is commonly used in a 澳洲幸运5开奖号码历史查询:stop-loss strategy where a trader enters a position but places 🤪an order to exit th❀e position at a specified loss threshold. A stop-loss order can also be used by short-sellers where the stop triggers a buy order to cover rather than a sale.

For example, if a trader buys a stock at $30 but wants to limit potential losses by exiting at a price of $25, they would enter a stop order to sell at $25. The stop-loss triggers if the stock falls to $25, at which point the trader's order becomes a market order and is executed at the next available bid. This means the order could fill lower or higher than $25 depending on the next bid price.

A stop-loss order converts into a market order once the stop price is triggered. If an investor wants more control o𓆉ver the price the trade gets executed at, they can modify their stop-loss order into a stop-limit order.

Stop-Limit Order

A stop-limit order is technically two order types combined. First, there is a stop-loss order that triggers the contract when a target price is met. Second, there is a limit price order that fills the contract only if the security price reaches that target. Both contracts are entered into at ♐the same time, though the limit price order is not triggered until the stop-loss order is filled.

For example, if the trader in the previous scenario enters a stop-limit order at $25 with a limit of $24.5🅘0, the order triggers when the price falls to $25 but only fills at $24.50 or better.

This type of order, depending on the limit price entered, could end up being triggered but then not filled. In the example above, the security's price could hit $25, triggering the stop-loss portion of the order. However, if the security's price drops to $24.49, the limit order portion will not be filled as the trigger price of $24.50 has not been met.

Advantages and Disadvantages

There are advantages and disadvantages to both types of orders. In general, both offer potential hedge protection for unfavorable security price movement. However, there are key characteristics about how these orders execute (or don't execute), fees, and execution standards.

The Bottom Line

Stop-loss and stop-limit orders can provide different types of protection for both long and short investors. Stop-loss orders guarantee execution, while stop-limit orders guarantee the priꦡce.