Stop Loss Limit and Stop Loss Market are two types of stop-loss orders used in trading to manage risk and limit losses.
Stop Loss Limit Order
Stop Loss Limit is a type of order in trading that allows a trader to specify the maximum amount they are willing to lose on a trade. The trader sets a price level, known as the “stop price”, at which the order will become active. Once the price of the security reaches the stop price, a stop-loss limit order will be executed at the next available price up to the limit price specified by the trader.
The main purpose of a stop-loss limit order is to help traders manage risk and limit potential losses. By setting a stop price, traders can ensure that their losses will be limited to a predetermined amount in the event that the security price moves against their position. This type of order can also be used to lock in profits by setting a limit price to sell the security at a specified profit level.
It’s important to note that stop-loss limit orders do not guarantee a specific price and that the actual price at which the order is executed can be different from the stop price due to market conditions and liquidity. Traders should be aware of these limitations and consider their personal preferences and trading strategies when deciding whether to use a stop-loss limit order.
Stop Loss Market Order
Stop Loss Market is a type of order in trading that automatically converts to a market order once a specified price is reached. Unlike a stop-loss limit order, a stop-loss market order does not guarantee a specific price and is executed at the current market price, which can be different from the specified stop price.
The main purpose of a stop-loss market order is to help traders manage risk and limit potential losses. By setting a stop price, traders can ensure that their losses will be limited if the security price moves against their position. Once the price of the security reaches the stop price, the stop-loss market order will be automatically executed at the current market price, which can be higher or lower than the specified stop price.
It’s important to note that stop-loss market orders can lead to slippage, which occurs when the execution price is different from the stop price. Slippage can occur due to market conditions, liquidity, and other factors. Traders should be aware of these limitations and consider their personal preferences and trading strategies when deciding whether to use a stop-loss market order.