Limit, stop and stop limit order

Most people are familiar with the market value order and probably the limit order, but things get probably blurry when it comes to stop orders used in combination with limit orders. So, let's look into those different types of orders when you are either buying or selling a stock. Trust me, it's really not rocket science and the best part is that it's here to protect your assets.

Limit, stop and stop limit when buying a stock

Buy limit order

When you issue a buy limit order at a certain price, it means the order won't be filled until the stock goes below that price. In other words, the stock has to go down in price to reach your limit before it is filled.

Buy stop order

When you issue a stop order, the stock has to go up in price past the stop before the order can be filled (at market value).

Buy stop limit order

The stop limit order is a combination of 2 orders, the limit order being triggered once the stop order is filled. In a buying situation, the stop order is filled once the stock price goes above your stop. The limit order is then triggered and the broker will fill the order only if the stock price is below your limit.

The goal is to buy a stock on its way up but not at too high a price. Say you have an eye on some stock currently priced at $20. You place a stop limit order at $22 for the stop and $23 for the limit. If, the next day, the stock opens at $22.5, the stop order is filled and the limit order is filled as well. If the stock opens at $23.5, the stop order is filled but the limit order is not.

The stop limit buy order is to protect you against huge gaps on the upside and paying way too much for a stock.

Limit, stop and stop limit when selling a stock

Sell limit order

When you issue a sell limit order at a certain price, the broker won't fill it until the price goes up past that limit.

Sell stop order

When you issue a stop order, you are telling the broker to sell the stock when its price goes below the stop (at market value). It is a way of protecting your gains and is often referred as a stop loss order.

Sell stop limit order

The stop limit order is a combination of 2 orders, the limit order being triggered once the stop order is filled. In a selling situation, the stop order is filled once the stock price goes below your stop. The limit order is then triggered and the broker will fill the order only if the stock price is above your limit.

The goal is to sell a stock on its way down but not at too low a price. For example, say you set a stop at $20 and a limit at $19 on a stock currently trading at $21. If the stock opens the next day at $19.5, the stop order is filled and the limit order is filled as well. If the stock opens at $18.5, the stop order is filled but the limit order is not.

The stop limit sell order protects you from huge gaps on the downside, and selling at too low a price.