A stop limit order combines the features of a stop order and a limit order, offering more control over trade execution. It only executes when your stop price is reached, and the market price meets your limit price.
Key features:
- Provides price precision but risks non-execution if the market moves unfavourably.
- Best suited for situations where the trade price is critical.
How it works:
- Set both a stop price and a limit price.
- When the stop price is triggered, the system places a limit order.
- The trade only executes if a buyer or seller matches the limit price (or better).
Example: You want to sell Ethereum if the price drops below $2,000 but ensure it sells for no less than $1,950.
You set a stop price of $2,000 and a limit price of $1,950. If the price hits $2,000, the system will attempt to sell, but only if buyers are willing to pay at least $1,950.
When to use a stop limit order:
- To sell at a specific price when the market falls, preventing execution at an undesirable level.
- To buy at a specific price during a market rise, avoiding overpaying.