Investor Bulletin: Stop, Stop-Limit, and Trailing Stop Orders

stop loss v stop limit

Most sell-stop orders are filled at a price below the limit price; the difference depends largely on how fast the price is dropping. An order may get filled for a considerably lower price if the price is plummeting quickly. Different types of orders allow you to give specific instructions regarding how you want your broker to fill your trades. When you place a limit order or stop order, you are telling your broker you don’t want the market price, the current price at which a stock is trading. Instead, you want your order to be executed once the stock price matches a price that you specify. This type of order, depending on the limit price entered, could end up being triggered but then not filled.

Stopping a market is always a threatening place for investors, especially for the new one. But if you invest for a long time, it becomes easy for you to buy and sell stocks. There are a lot of platforms that are buying and selling stocks like apps, brokers, etc. Trading in a volatile market stop-limit order protects against market volatility.


Both types of orders can be entered as either day orders or good-’til-canceled (GTC) orders. There are several real-life examples of how Trailing Stop Loss and Trailing Stop Limit orders can be used in trading. For example, a trader may place a Trailing Stop Loss order at the current market price, which will move with the market. This type of order can be useful for traders who want to lock in profits while also reducing the potential for losses. Trailing Stop Loss orders are similar to Fixed Stop Loss orders, but they are more dynamic.

stop loss v stop limit

At that point, the stop-loss order becomes a market order, and the stock is sold at whatever the best available transaction price is at that moment. Let’s assume Acme shares have low liquidity, and the best available price is $88.75. The stop-loss order will result in 100 shares of Acme being sold at $88.75.

What is the Difference Between a Stop On Quote and a Stop Limit On Quote?

A stop order is an order to buy or sell a stock at the market price once the stock has traded at or through a specified price (the “stop price”). If the stock reaches the stop price, the order becomes a market order and is filled at the next available market price. If the stock fails to reach the stop price, the order isn’t executed. Note, even if the stock reached the specified limit price, your order may not be filled, because there may be orders ahead of yours.

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In that way, the stop level is continuously increased as the market moves, thus becoming a trailing stop. Simply put, there is no fixed price for a trailing stop loss, but the stop loss level readjusts itself continuously with the rising market. Generally, market orders should be placed when the market is already open. A market order placed when markets are closed would be executed at the next market open, which could be significantly higher or lower from its prior close.

Stop-Loss Trigger Price

A stop-loss order would execute the sale at $5, losing more money than you had intended. Moreover, it is a simple tool despite a lot of investors failing to use it efficiently. There is a reason why you use stop-limit order because of your effort to maintain control over a transaction as much as you can. You control when to put an order to buy stocks and when you are willing to put a maximum amount of money.

  • A stop-limit order triggers a limit order when a designated price is hit.
  • For example, say you own Stock A that sells for $10 but has been losing value.
  • If the market continues to go against you to the upside and goes through your sell stop loss level, then the order will be executed at the current market price.
  • On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.
  • Stop-loss orders can guarantee execution, but price fluctuation and price slippage frequently occur upon execution.
  • For example, a buy order could execute below your limit price, and a sell order could execute for more than your limit price.

For example, say you own Stock A that sells for $10 but has been losing value. This means that if Stock A hits $8, your portfolio will immediately try to sell all of your Stock A shares at the best available price. So if the price drops below $7.50 while your portfolio is trying to sell, you’ll still sell at that lower price.

Final thoughts on Stop Loss vs Stop Limit Orders

Also called a “stop-loss order,” stop orders are used to buy or sell once the price moves past a certain point. At this point, the stop order becomes a market order and is executed. Once again, this means that you can specify that you’d like to close your long trade by selling, if price rises above a certain level. When you place a sell stop loss order, you’re now saying that this price is the maximum that you’re going to let the market move against you, before you want to close your position.

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As it’s executing a market order at this price, there’s a chance you may experience slippage and may be a worse price than expected. Stop loss orders are the simplest pending orders available and will only trigger once a certain price has been hit. If you’re looking for the difference between limit and stop orders, we’ve also got you covered. There is no guarantee that execution of a stop order will be at or near the stop price.

Since a market order has no conditions as to what price it may be executed at, it is typically filled immediately. In this example, a limit order to sell is placed at a limit price of $50. Short-sellers, for example, would set a stop-loss order to buy if the price of a stock they have shorted ever goes above a certain price. This means that if that stock ever climbs to $15, your portfolio will execute a market order to buy Stock B as soon as it hits that price. Whether it continues to climb or falls a bit during the process of buying, the order will still go through at the new price.

  • It does not immediately sell at the market value once the Stop Price is reached.
  • Many investors will cancel their limit orders if the stock price falls below the limit price because they placed them solely to limit their loss when the price was dropping.
  • In general, both offer potential hedge protection for unfavorable security price movement.
  • A stop-limit order may eventually yield a considerably larger loss if it does not execute.

A limit order provides a sale or a purchase of protection at a specific price from losses. Suppose that Stock A opens at $7 per share, below both your $10 stop price and your $8 limit. Your stop-limit order will convert into a limit order, but it will not execute the sale. Your portfolio will wait for Stock A to go back up to $8 before selling.

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