How Stop-Limit order works

As its name states, a Stop-Limit order is a hybrid of a Limit order and a Stop-Loss order.

Stop-Limit orders work as follows: when the stop price is reached, the order becomes a limit one. After that, the asset is automatically bought or sold at the limit price or better. This type of order is highly beneficial for those who use Stop-Loss orders and Limit orders.

Here is an example of how a Stop-Limit order works:

Imagine that the current price of an asset stands at 2,300. A trader places a stop price above and below the current price level at 2,800 and 1,900 respectively. If the price touches 2,800 or falls to 1,900, it triggers the Stop-Limit order. At the same time, the Limit order is recorded in the order book.

How can traders benefit from such an order?

Using Stop-Limit orders, traders do not have to constantly monitor trading charts. In addition, these orders help them avoid risks.

This order may come in handy when a sudden and unforeseen event instantly affects the market.

Some traders believe that a Stop-Limit order may save a losing position more efficiently than if traders were to do it manually.