How do you use a stop-loss limit order?

Stop-limit orders are a type of trading instruction that investors utilize to manage risk and control the price at which their trades are executed. This order type combines the features of a stop order and a limit order, offering investors greater flexibility and precision in their trading strategies.

To set a stop-limit order, investors first specify a stop price, which acts as the trigger for the order. This is the price point where the investor wants the order to become active. Once the market reaches this level, the stop-limit order converts into a limit order.

Alongside the stop price, investors also specify a limit price. This is the maximum or minimum price they are willing to accept for the trade execution. The limit price ensures that the investor's trade will only be filled at a favorable rate, preventing potential slippage or adverse price movements.

If the market price reaches the stop price specified by the investor, the stop-limit order becomes active. The order then enters the market as a limit order, with the investor's limit price as the condition for execution.

The limit order will only execute if the market price is at or better than the investor's limit price. This means that if the market price moves past the investor's limit price, the order may not be filled, protecting the investor from adverse price movements.