How Is Stop Limit Order Done?
A Stop Limit order is same as stop order wherein a stop price will trigger the order. Such an order will be placed by a broker that merged the features of both the stop order and those of a limit order. This is a combination of both a stop order and a limit order. Once this is activated, the stop limit order becomes a buy limit or a sell limit order and can be carried out at a particular price or a better one. This will be executed after a stop price has been reached, and once reached, it becomes a limit order to buy (or sell) at the limit price or for a better one. As with all limit orders, a stop limit order could not be filled unless the security price reaches the specified stop price.
The benefit of this type of order is that it allows the traders to control over when is the best time order should be filled. Investors can manipulate the price at which the trade will be implemented. Of course, like all limit orders, the trade will be filled or guaranteed unless the stock’s price or commodity never reaches the specified stop or limit price. Mostly, this incident happens in fast moving markets since prices tend to vary or fluctuates outrageously.
Since this type of order can help you in the possibility of getting a lower buy price or a higher sell price than a limit order alone, there are few tips which might be useful for you.
- 1.If you are unfamiliar with the process of using a basic type of limit order, read some articles about how to issue a limit order, for you to have an overview about it.
- 2.Be aware of the difference of using a stop limit order from a limit order. As a substitute of having one price point, you must need to set two. The initial one will be a “trigger” point that will stimulate your order. The second will represent the price at which you intend to actually buy or sell the stock.
- 3.Decide what you desire to have with this type of order. You may use one to sell your stock at a particular price point after it tapped above your trigger point. As well, you can use one to purchase a stock at a particular price after it moved below your trigger point. This can be helpful if the stocks you are selling heads up and keep moving or the one you intend to buy drops down and keep falling. On the other hand, just like the basic limit order, there is no assurance that you will achieve the price you set; your stock could either hit the trigger or have the reverse direction. As much as possible, keep in mind that the further apart your trigger and target prices are, the less you will be able to achieve both objectives in one day.