stop limit order definition

Stop Limit Order Definition with Example

Stop Limit Order Definition – An order to buy or sell the stock when the  stock price attains a specific price.

In other words, stop limit is a combination of stop order and limit order. When the stock reaches the stop price, a limit order comes into play which buy or sell the stock when the stock price reaches the specified price.

Importance of Stop Limit Order

A stop limit allows the investor to somewhat have a control over the price of the stock. If the stock market is behaving normally, then the stop loss order can protect the investor from incurring huge losses. But when the market is volatile, then the stop loss order becomes the market order. This is the point where the investor loose all of his control over the price of the share.

Here comes the role of Stop limit order. This order enables the investor to keep a significant degree over the change in the price of the stock. It is also important to keep in mind that if the specified limit price is not reached than the trade will never be executed.

Stop Limit Order Example

In  order to understand the stop limit order definition more clearly, let’s look at this example.

Suppose you have a share that is right now trading at Rs 50. You put a stop limit order that if it increases to Rs 55 sell the stock. Now when the stop limit reaches to the target price, the stock will automatically sell. But let’s assume the price of share never reaches the targeted price, then the trade will not be executed.

Related Financial Terms of Stop Limit Order