The stop-loss-limit-order is also known as the stop limit. These terms describe an order with limit additions. This order automatically initiates the sale command if a specific value is reached or undercut. Moreover, the sale order is only executed if the current market price is at a fixed limit. This order is one of the limit orders used to restrict losses and profit taking.
The stop value and limit amount are used for hedging
By setting up a stop-loss limit order, the investor determines a stop value and a limit amount. The order is not converted into a limited sell order until the set price at or below the stop value is reached. This order therefore goes public with a limit. As soon as the previously specified limit amount also has been reached, execution takes place. So unlike the stop-loss order, the stop-loss limit order includes two limits that have to be adhered to. When a stop loss order is placed and reaches the specified stop value, it is converted into a best order and thus into an unlimited order. This would result in the execution of the order at the next tradable rate.
Function of a Stop-Loss-Limit-Order
A stop-loss limit order is often used when the investor wants to take profits and hedge the position. As soon as the market price falls, the order is limitedly passed on to the stock exchange. This can help to reduce losses caused by falling market prices. However, the second limitation ensures that the sale does not take place below a fixed value. In an ideal case, such an order also makes it possible to secure profits. Whether a stop-loss limit order is associated with fees depends on the broker. Using the comparison calculator, online brokers with different limit fee models can be compared.
Example of a Stop-Loss-Limit-Order:
An investor holds 1,000 shares of a company at a current price of 150 euros per share. To hedge this price, the investor decides on a stop-loss limit order. As soon as the price falls below 140 euros, the 1,000 shares should be sold. However, the sale should fetch at least 138 euros. Accordingly, the investor would put the stop at 140 euros and the limit at 138 euros. As soon as the price surpasses the 140 euro mark, a limit order is placed. If the price in the next step is at least 138 euros, the sale order is executed. If the price continues to fall, however, no sale takes place and the shares remain in the investor’s portfolio once the order validity has been reached.