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If a Stop-Limit Is Reached, Will It Always Sell?
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Trading Order Types & Processes
If a Stop-Limit Is Reached, Will It Always Sell?Learn the pros and cons of stock selling using a stop-limit order
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Andrew Beattie
Andrew Beattie was part of the original editorial team at Investopedia and has spent twenty years writing on a diverse range of financial topics including business, investing, personal finance, and trading.
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Updated December 01, 2021
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Gordon Scott
Reviewed by
Gordon Scott
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Gordon Scott has been an active investor and technical analyst of securities, futures, forex, and penny stocks for 20+ years. He is a member of the Investopedia Financial Review Board and the co-author of Investing to Win. Gordon is a Chartered Market Technician (CMT). He is also a member of CMT Association.
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Skylar Clarine
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Skylar Clarine is a fact-checker and expert in personal finance with a range of experience including veterinary technology and film studies. Show
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Trading Order Types & Processes
One of the problems with using a stop-limit order to sell a security is there is no assurance you'll get the price that you want. For example, if you buy a stock at $45 and place a stop-limit to sell at $40, you're placing a conditional order that only gets executed if the conditions of the trade are met. For your stop-limit order to be filled, it will need to meet the parameters you set regarding the target price for the trade, the outside price for the trade, and a specified time frame. While a stop-limit order gives traders more control over the conditions of the trade, it does not act as a guarantee the trade will get filled. Here we review what constitutes a stop-limit order and some common reasons why your stop-limit order might not get executed. Key Takeaways
Stop Order vs. Stop-Limit OrderFirst, it's important to understand the differences between a stop order and a stop-limit order. While similar-sounding, the conditions for each order type are not the same. Stop OrderIf you establish a stop order to sell a stock, it means that the stock will be sold at or beneath a certain price. A stop order triggers a subsequent market order when the price reaches your designated point. For example, if you own 500 shares of a company trading for $45 and you put a stop order in at $40, you are saying you will sell your shares at $40 or the best available price under $40. Your stop order could be executed at $40 on the dot. But if the market is falling fast, it may be executed at $38 or a range of lower prices as your shares are being sold off. Stop-Limit OrderIn contrast, investors who opt for a stop-limit order to sell a stock are looking to have more precise control over when the order should be filled by specifying a range of acceptable prices. A stop-limit order includes two prices:
The stop-limit order will be triggered once the given stop price has been reached. The stop-limit order then becomes a limit order to sell at the limit price or better.In our example, with a stop-limit order, you could reduce the downward range by indicating you only want to sell your shares at a stop price of $42 with a limit price of $40. An advantage of using a stop-limit order is that it can help the investor mitigate risk by locking in gains or limiting losses. Why Some Stop-Limit Orders Don't SellTo make the stop-limit order work in our above example, another person in the market has to bid somewhere in the range of your $42 stop price and $40 limit price for all 500 of your shares. However, if there isn't a bidor a combination of several bidsthen your order won't be executed. In widely traded stocks with high volume, this is usually not a problem, but in thinly traded or volatile markets, your order may not get filled. Also, remember, shares don't necessarily go down incrementally like a thermometer. They can jump to certain prices if the bids and asks aren't matching up. It's possible for a stock to trade at $43 and then fall to $39 without touching the $42 mark. In practice, however, this doesn'thappen very often and your stop-limit order will likely be filled either in a single tradeor over several trades as the stock price hovers around the $42 level. In short, a stop-limit orderdoesn't guarantee you will sell, but it does guarantee you'll get the price you want if you can sell. Article Sources
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Related Terms
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