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Glossary, N - T

Stop Limit

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DEFINITION: A Stop Limit is an order that combines the features of stop order with the features of a limit order. A stop limit order executes at a specified price (or better) after a specified stop price is reached. After the stop price is reached, the stop limit order becomes a limit order to buy (or sell) at the limit price or better.

EXAMPLE: The benefit of a stop limit order is that the buyer/seller has more control over when the stock should be purchased or sold. On the downside, since it is a limit order, the trade is not guaranteed to buy or sell the stock if the stock/commodity does not exceed the stop price.

For example, if stock ABC Inc. is trading at $30 and the investor wants to buy stock after it starts to show serious upward momentum (around $35 but not more than $36), the buyer must use a stop limit order to buy with a stop price of $35 and the limit price at $36. If the price of the stock moves above the $35 stop price, the order is activated as a limit order. The stock will be bought as long as it can be filled under $46 (the limit price). If the stock gaps above $46, the order will not be filled.

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