Definition: An order combining the features of stop order and limit order. Once the stop price is reached, the stop-limit order becomes a limit order to trade at the pre-determined limit price or better. However, there is no guarantee that the order will be filled in the event the price gaps through the limit price, the order will not be filled.
Usage: To enter a new position or exit an outstanding one when the price surpasses a particular point. Can also be used to take profit or cut down on losses upon reaching the stop price.
An example of a buy stop
The buy stop-limit order is triggered when the stop price hits $3.90. A limit order to buy the counter at a limit price at $3.95 will be submitted and executed when the market price hits $3.95.
An example of a sell stop (to cut losses)
The sell stop-limit order is triggered when the stop price reaches $3.85. A limit order to sell the counter with a limit price of $3.80 is submitted and will be executed when the market price reaches $3.80
An example of an unfilled stop limit order due to price gapping through
The buy stop-limit order is triggered when the stop price of $0.740 is hit. A limit order to buy the counter with a limit price of $0.750 is submitted. However, the market price of the counter gaps to above the limit price of $0.750, thus the order remains unfilled.