The Stop Limit Order On Trade - You Have To Know

The Stop Limit Order On Trade - You Have To Know

Trading is one of the most popular forms of investing in and selling stocks. Many people around the world are involved in trading. On trade, there is a term called stop-limit order. It is an option that an investor can choose. When an investor opts for this option for selling their stock, they are looking for more precise control over the order. They will want to have control over when the order must be filled by stating a particular range of suitable price. When you are getting involved in trading stocks, you will have to know all the details. But, we are here to give a basic introduction to stop-limit order for your general knowledge. Read on to know more.

What is a stop-limit order?

This is a combination of stop orders and limit orders. Basically, the stop-limit order comes with two prices - the one which starts with the specified target price for the trade, and another one is outside of the targeted price for the trade. This will get triggered when the trade will reach the specified stop price. Then this stop-limit becomes the limit order for selling at a better price or even at the limit price.

For instance: If you opt for the stop-limit order, you will be able to reduce the price range by indicating that you want to sell off the share at a stop price of $62 which has a limit price of $60.

Benefits of stop limit order

The investors use the stop limit order option. With the help of this option, you will be able to set two price points i.e. stop and limit. The stop price is the start point of the specific price targeted for the trade. The limit price is outside of the price target for the same trade. This option can help the investors to lessen the risk of any losses. This is done by locking the gains as well as by limiting the losses.

Here, the investor can also set the timeframe for the same. This timeframe is needed to determine when this option will be considered and executed. The primary benefit of this option is to give complete and precise control to the trader over the particular order.

When you can use the stop limit order?

From the above explanation, you must have already got why traders use the stop-limit order. This is important for having some control over the transaction. You can use this not only for controlling when you can put in an order for buying stocks but you can also determine the maximum amount of money that you are willing to put in. When trading, with the help of this option, you will be able to limit how much you want to sell the shares for. This is important to keep the loss in control.

This control can be used particularly for the stocks that are extremely volatile in nature. When you want to make sure that you will set a limit price for that particular stock you can opt for this option. This can provide you with better control of the otherwise volatile stock. This can mitigate the risk of any loss in the first place by giving you a lot of control over the stock trading. But there is a risk involved too with this control.

Is there any risk involved?

The biggest risk of this order is that it is very much possible that it may not execute. This is quite risky, especially when you are selling a stock.

Is it okay to use a stop-limit order?

Keeping all the functions, benefits, and risks in your mind, you can take a call whether or not you want to execute the stop limit order on your trading. Some of the traders hesitate due to the only risk involved with this order. But it makes sense to use this in some of the specific trades, as mentioned above.

When can I use the stop limit order?

When the stock is extremely volatile and you want to have complete control over it to mitigate every possible risk or loss, you can opt for this order. But you can always discuss this with your trading expert before deciding on the limit and stop prices.