What is a Stop-Limit order in futures trading?

A stop-limit order is a basic order type that places a limit order once a specified price has been reached. This price level is called stop price and when touched or exceeded, the limit order becomes a limit order.

Stop-limit orders are conditional orders that combine the characteristics of stop orders with those of limit orders. Stop-limit orders are not only used for exit positions and can also be beneficial for entries. When entering a position, traders use stop limit orders to determine where a limit order should be triggered. Conversely, traders also use stop-limit orders to exit trades to minimize risk and record profits.

Buy stop-limit order vs. sell stop-limit order

A buy stop-limit order must be entered above the current market price and a sell stop-limit order must be entered below the current market price. If the stop price is not affected by the current market value, no subsequent limit order will be placed.

Once the stop price is reached, a limit order is placed a predefined number of ticks from the initial stop price. This combines the characteristics of a stop order with those of a limit order.

Advantage of stop-limit orders

The main advantage of using a stop-limit order is the precise control the trader has over where an order should be executed.

Stop-limit orders give traders the ability to specify a price at which a limit order will be triggered. Once the market reaches this stop price, a limit order with a predefined number of ticks outside the stop price is sent to the exchange.

Disadvantage of stop-limit orders:

Although stop-limit orders offer precise control over where orders will be executed, they do not guarantee a fill.

If the security does not reach the specified stop price, no limit order will be issued for the trade. Also, even if the limit price is reached and the limit order is placed, it will only be executed if the market reaches the limit price with sufficient volume.

In this sense, opportunities to enter or exit the market could be lost with stop-limit orders.

Examples of stop-limit orders

From the E-mini Nasdaq 100 Futures (NQ) chart above, the market is currently trading at 7677.50 , the buy stop-limit order at 7680 . 50 would force the market to move to 7680. 50 to activate, then place a buy limit order of .

On the other side of the market, the stop-limit sell order is at 7676 . 75 would force the market down to 7676 . 75 to activate, then it would emit a limited sale .

Learn more about basic order types in this quick video overview:

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