How a stop-limit order works
A stop-limit order combines two prices: a stop that triggers the order and a limit that caps the price it will accept. When the stop level is hit, instead of becoming a plain market order, it becomes a limit order at your chosen limit price. This gives you price protection on the exit, but it can fail to fill if the price blows straight through your limit.
Worked example
You hold a stock at $50 and set a stop-limit to sell with a stop at $48 and a limit at $47.50. If the price falls to $48, a sell limit at $47.50 activates. If the price hovers near $48, you exit between $48 and $47.50. But if it gaps to $45, your $47.50 limit is never met, the order does not fill, and you are still holding as the loss grows. That is the trade-off.
Stop-limit versus stop
A plain stop order guarantees an exit but not a price; a stop-limit guarantees a price but not an exit. In fast, gapping markets the stop-limit can leave you stuck in a losing trade, which is why a plain stop is usually safer for risk control. On Volity, use stop-limit only when avoiding a bad fill matters more than guaranteeing the exit.
Why it matters
The stop-limit trades exit certainty for price certainty, a dangerous swap on a stop-loss, because the whole point of a stop-loss is to get you out. Understand the trade-off before using one for protection. Related: stop order and gap risk.
Learn more in our forex trading guide.
