A stop-limit order is a handy tool for trading. It specifies the highest and lowest price of the stock the trader is willing to accept. The trader sets their desired stop price and limits the price. It provides traders with a sense of support and control by determining the maximum and minimum they are willing to accept.
A limit order is issued when the stock price reaches the set stop price, telling the market maker to buy or sell the stock at the limit price. It aids in the limitation of losses by identifying the point at which the investor is reluctant to accept losses.
How do they work?
A few things need to be done once a trader has specified his stop-limit order. He must determine when it remains valid, either for current or future markets. The details are given to the public exchange and recorded on the order book.
Let’s put this into perspective. Let’s say an investor specifies it should be valid for one day; the order will automatically expire at the end of the market session. The trader is also given the option to have it be valid until he cancels it. This notion is called good till canceled (GTC)
In general, these orders work during the standard market session from 9:30 till 4:00 EST. the stop-limit order will not be valid for after or pre-market hours, weekends, holidays, and the like.
A stop-limit order can be a very practical solution for traders. The fundamental advantage of a is that the trader has complete control over when the order is filled. The disadvantage, as with other limit orders, is that the transaction is not guaranteed to be completed if the stock does not reach the stop price within the time period indicated.
Now that you know the benefits it offers you can decide whether it’s something that works for you. Each trader has their different methods, for some this can be a great advantage, and for some not.
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