Stop-Loss vs Stop-Limit Orders – What Is The Difference Between Them?

If you are an active trader with a long-term investment plan, then you may know the difference between stop-loss and stop-limit orders. In the context of a long-term investment plan, a stop-loss order is typically used to protect your downside risk. 

A stop-limit order, on the other hand, is used to protect your upside potential. When it comes to active trading, the key difference between stop-loss and stop-limit orders is that a stop-loss order is an order to buy or sell a security at a predetermined price, while a stop-limit order is an order to buy or sell a security at a predetermined price only if the security’s price reaches or exceeds a predetermined price. 

In other words, with a stop-loss order, you are telling your broker to buy or sell a security at a specific price. If the security’s price reaches or exceeds that price, the order is executed. With a stop-limit order, you are telling your broker to buy or sell a security at a specific price, but only if the security’s price reaches or exceeds a predetermined price. 

One advantage of a stop-limit order is that it gives you more control over your trade. If you are worried about a security’s price falling below a certain level, you can place a stop-limit order at that level. This way, if the security’s price falls below your stop-limit price, your order will not be executed. Another advantage of a stop-limit order is that it can help you avoid slippage. 

Slippage is the difference between the price you wanted to buy or sell a security at and the actual price you paid or received. Slippage can occur when there is a sudden change in a security’s price, such as during a news event. If you place a stop-limit order, you can specify the maximum amount you are willing to pay or receive for a security. This way, if the security’s price gaps down or up, your order will not be executed. 

One disadvantage of a stop-limit order is that it may not be filled if the security’s price does not reach your stop-limit price. This can occur if the security’s price gaps down or up. 

Another disadvantage of a stop-limit order is that it may be filled at a price that is worse than the price you wanted. 

A stop-loss order is an order to sell a security when it reaches a certain price. A stop-loss order is typically used to protect your downside risk. If the security’s price falls below your stop-loss price, your order is executed. A stop-loss order has the opposite effect of a stop-limit order. 

With a stop-loss order, you are telling your broker to sell a security when it reaches a certain price. If the security’s price reaches or exceeds that price, the order is executed. 

One advantage of a stop-loss order is that it can help you limit your downside risk. Another advantage of a stop-loss order is that it can help you avoid slippage. If you place a stop-loss order, you can specify the minimum price you are willing to sell a security for. This way, if the security’s price gaps down, your order will not be executed. 

One disadvantage of a stop-loss order is that it may not be filled if the security’s price does not reach your stop-loss price. This can occur if the security’s price gaps down. 

Another disadvantage of a stop-loss order is that it may be filled at a price that is worse than the price you wanted.

If you want to start your trading journey and grow with a community be sure to checkout www.amanhamdani.com

Learn trading from traders and trade live in the stock markets with a mentor and 100s of other like-minded traders everyday from 9am – 3pm!