A stop-limit order functions in the same way as a stop order. However, once triggered (by the Stop Loss price), rather than being executed at the next available price, it converts to a limit order at a pre-agreed limit price (the Stop Limit price). From that point on, the order is treated as a limit order.
This type of order gives you some protection from a bad fill in a gapping or illiquid market. While trailing stop orders are supported, trailing stop-limit orders are not available at Saxo. Please note that not all exchanges and instruments support stop-limit orders.
- Characteristics of stop-limit orders
- How stop-limit orders work
- Example of a stop-limit order
- Advantages and disadvantages of stop-limit orders
- How can I place a stop-limit order?
- Can I use stop-limit orders for all instruments?
Characteristics of stop-limit orders
- Dual price components: Consist of a stop price that triggers the order and a limit price that specifies the acceptable execution price.
- Conditional execution: The order is activated when the market price reaches the stop price, then becomes a limit order.
- Price control: Provides precise control over the execution price, ensuring trades are executed at the limit price or better.
How stop-limit orders work
A stop-limit order is activated when the market price reaches the stop price you set. Once triggered, it becomes a limit order, which will only be executed at the limit price or better. This provides you with more control over the execution price compared to a standard stop order, which converts to a market order upon activation.
Example of a stop-limit orderConsider you own shares of Company ABC, currently trading at USD 50 per share. You want to sell if the price drops to USD 45, but you don't want to sell for less than USD 44. To achieve this, you set up a stop-limit order with the following parameters:
If the market price drops rapidly or the gap between the stop price and the stop-limit is too narrow (e.g., a stop price at USD 100 and a stop-limit at USD 99.5), there is a risk that the market could quickly fall below your limit price, resulting in the order not being executed. |
Advantages and disadvantages of stop-limit orders
Advantages
- Price control: Offers precise control over the execution price, reducing the risk of unfavourable fills.
- Risk management: Helps manage risk by setting specific conditions for trade execution, protecting against sudden market swings.
Disadvantages
- Non-execution risk: The order may not be executed if the market price moves past the limit price without filling the order, especially in fast-moving markets.
- Complexity: More complex to set up than standard stop or limit orders, requiring careful consideration of both stop and limit prices.
How can I place a stop-limit order?
New position
- In the Trade Ticket > Click Add Take Profit / Stop loss > Click on Stop Loss > Choose Stop Limit > Choose a Unit > Set your stop-limit and click Place Order
Existing position
- Right-click on your position or click Add under Stop in the Positions module > Click on Stop Loss and choose Stop Limit as shown above
Can I use stop-limit orders for all instruments?
No, not all exchanges and instruments support stop-limit orders.
Read more on order types