A stop limit order is a two-stage conditional order. It stays dormant until the market reaches your stop price - then it wakes up and places a limit order at your chosen price. You get the trigger of a stop order and the price control of a limit order, combined.
Example:
You own TSLA, currently trading at $200. You set a sell with stop price $190 (Trigger level) and Limit price $185 (Min you'll accept)
- TSLA trades above $190 - your order sits dormant, your position is untouched
- A trade prints at $190 or below - the stop price is elected and your order converts to a limit sell at $185
- The limit order fills at $185 or higher - or stays open if the market gaps below $185 before a buyer is found
If the price reverses
If TSLA dips to $190, triggers your order, then bounces back to $200 - your sell limit at $185 is now live while the stock has recovered. Since a sell limit fills at $185 or higher, it may fill at the recovered price. If you want to keep the position, cancel the order immediately after the reversal.
If the price reverses
If TSLA dips to $190, triggers your order, then bounces back to $200 - your sell limit at $185 is now live while the stock has recovered. Since a sell limit fills at $185 or higher, it may fill at the recovered price. If you want to keep the position, cancel the order immediately after the reversal.