Stop and limit order
Family II · Orders
Not to be confused with stop loss, limit order, stop order.
Stop and limit order is an order type that merges two conditional mechanisms. The stop price acts as a trigger: once the market trades at or through that level, the order becomes active. At that point, a limit order is placed at the limit price, which may differ from the stop price, and the order will only execute at that limit or better.
How it works
A stop and limit order requires two prices: a stop price and a limit price. The stop price is the trigger; the limit price is the worst acceptable execution price once the order is activated. The two prices can be the same or different, depending on the intended strategy.
When the market reaches the stop price, the order is sent to the market as a limit order. If the limit price is not immediately available, the order rests in the book until it can be filled or until it is cancelled. This differs from a stop order, which becomes a market order and may fill at any price.
Because the limit price caps the execution price, a stop and limit order may fail to fill if the market gaps past the limit. This is the main trade-off: price protection versus certainty of execution.
Worked example
Suppose a trader holds a long position in a stock trading at 50.00 and wants to limit losses but also avoid selling below 48.00. They place a stop and limit order to sell with a stop price of 49.00 and a limit price of 48.00.
If the market had fallen directly from 50.00 to 47.50 without trading at 48.00 or better, the limit order would not have filled, and the position would remain open.
Variations and considerations
The exact behaviour of stop and limit orders can vary by broker and market. Some brokers may not accept a limit price on the same side as the stop, or may require a minimum distance between the two. In fast markets, the order may be triggered but not filled if the limit is too tight.
Stop and limit orders are available for both buying and selling. A buy stop and limit order might be used to enter a long position on a breakout with a maximum purchase price, while a sell stop and limit order is common for exiting a long position with a minimum sale price.
Regulatory protections, such as those for equities or futures, may affect how orders are handled during extreme volatility. Traders should check the specific rules of their broker and market.
Often confused with
- stop loss
- A stop-loss is an order intended to close a position at a predetermined loss level, often as a market order once triggered, whereas a stop and limit order adds a limit price to control execution price; the visible sign is that a stop-loss has only one price (the stop), while a stop and limit order has two (stop and limit).
- limit order
- A limit order is an instruction to buy or sell at a specified price or better without any trigger condition, while a stop and limit order remains dormant until the stop price is reached; the visible sign is that a limit order is active immediately, whereas a stop and limit order waits for the stop trigger.
- stop order
- A stop order becomes a market order when the stop price is touched, so it may fill at any price, while a stop and limit order becomes a limit order and will only fill at the limit price or better; the visible sign is that a stop order has no limit price, whereas a stop and limit order shows both a stop and a limit price.