Expert: Gina Boykin - 11/11/2007

Question
Hi Gina,
When trading stocks, what is the difference between “sell limit”, and “sell stop limit” order? Could you use a dollar amount in a scenario?
Thanks,
Randy
USA-MA


Answer
There are stop orders, stop limit orders, and limit orders, which can be for buying or selling.

A STOP ORDER means that when a stock reaches a certain price (which is your "stop"), it becomes a regular market order and is bought or sold at the next available price.

Let's say you have a stock at $20 and you you have a stop order to sell at $25.  The stock hits $25 then jumps to $28.  Since it past your stop order amount, it's now a market order.  Since the market is at $28, it will sell for $28.

The situation could work in reverse, though.  Let's say the stock market is very volatile, and your stock hits $25 and then drops down to $24.  Your stock will sell at $24 because your "stop" hit, and it sold at the next market price.

STOP LIMIT ORDERS-  You set a certain level ($25 in this example).  However, once the stock hits $25 (your "stop"), your order becomes a limit order.

A LIMIT ORDER means a stock has to be sold or bought at a specific price (or better).  So your stock has to hit $25 twice.  Once to trigger the stop, and a second time to trigger the limit order.  If your stock jumps to $28, it won't sell.  The stock has to then come back down to $25 for your limit order to trigger.  If it does hit $25 again, your stock will sell at $25 or higher (it won't sell lower).

A regular LIMIT ORDER is an order to buy/sell at a specific price (or better).  There is only one trigger this time.  If your limit order is at $25, once the trigger is hit, it will sell for $25 or higher.  If the stock hits $25 and goes down to $24, it won't sell.  If the stock then jumps to $26, it will sell because it was waiting for the stock to go back to $25 or higher.