A stop-limit order is a conditional trade over a set period of time that is used to mitigate risk. This type of order is an option available from almost all online brokers. The stop-limit order will be executed at a specified price, or better, after a given stop price has been reached.

Once the stop price is reached, the stop-limit order becomes a limit order to buy or sell at the limit price or better. Stop-limit buy orders are placed above the market price at the time of the order, while stop-limit sell orders are placed below the market price. Stop-limit orders allow traders to have precise control over when the order is to be executed, but there is no guarantee that it will be executed.

The main advantage of a stop-limit order is that the trader has precise control over when the order is to be executed:

• Stop: The beginning of the target price specified for the trade
• Limit: The outside of the price target for the trade

Limit Order

A limit order is an order to buy or sell if the market moves to your desired level at a specified limit price. Think of a limit price as a price guarantee. By setting a limit order, you are guaranteed that your order only gets executed at your limit price (or better).

You can place a Buy Limit order to buy at or below a specified price.

You can place a Sell Limit order to sell at a specified price or better.

Once the market reaches the limit price the order is triggered and executed at the limit price (or better). Limit orders work for you and can only be executed once the price becomes more favorable to you. The catch is that the market price may never reach your limit price so your order may never get executed.

Stop Entry Order

A stop entry order “stops” an order from being executed until the price reaches a stop price. This type of order is used in a trading strategy when you want to buy only after the price rises to the stop price or sell only after the price falls to the stop price.

A stop order can only be executed when the price becomes less favorable to you, however, it becomes a market order when the trend started and you see the new price as the best limit entry order to join the trend.