Stop Orders and Limit Orders Clarified

Most people are familiar with the SELL STOP order (that is also know as the "stop loss order"). When the price DECLINES and hits your STOP price, the order then becomes a MARKET ORDER to SELL. (That is why you often get a worse sell price than you may have expected.)

You can also place a SELL STOP LIMIT order. That is where if the price hits the STOP, the order becomes a LIMIT order. You set that LIMIT price below the STOP price. So there is that range where the order will be executed -- if it is executed. If the price drops too far too fast, you will still have your stock. So if you were looking for a "stop loss" with a SELL STOP LIMIT, you could be S.O.L.

Conversely with the BUY STOP order. When the price RISES and hits your STOP price, the order becomes a MARKET ORDER to BUY.

Now, to prevent paying too much on a BUY (say you want in, but not at a ridiculously high price), you can put in a BUY STOP LIMIT order. You set the LIMIT part of the order at the maximum price you are willing to pay. So, if the price hits the STOP price, your order becomes a LIMIT order, where you may get a BUY fill price below your LIMIT price. If the price rises too far too fast, you may not get filled on your BUY order.

The BUY STOP LIMIT order is frequently placed the night before as a day order when you want in, but if the opening price is too high, fuggedaboudit.

Also note the SELL STOP order or SELL STOP LIMIT order can be used instead of a MARKET order to initiate a SHORT position. Then a BUY STOP order is a "stop loss" order if you are short and want/need to cover.

------ Limit

.10 typical

------ Buy Stop

.15 typical

------ Ask
------ Bid

.15 typical

------ Sell Stop ("stop loss")

.10 typical

------ Limit