Stop Limit Order (Stop Limit Buy Order, Stop Limit Sell Order)

A stop limit order is an order that is triggered once a certain price is touched. A stop limit buy order will be triggered when a price that was previously above the market is traded at (touched).

Stop limit orders are mostly used to close losing trades or lock in profits on winning trades when the market turns.

Say a trader buys a future or stock at 1120. The trader doesn't want to lose any more than a maximum of 20 points on this trade. The trader will put a stop limit sell order at 1100. If the market trades down to 1100 then his order will be triggered and turns into a market order to sell his position. The trader may or may not get the price that he stipulated (1100) in the stop order especially if the market is moving fast. This is called slippage. Almost always the slippage is negative and makes your loss worse. In very rare cases when the market touches the price and then immediately trades up again the slippage may be positive.

Stop limit orders can also be used to enter the market. Say the market is trending sideways while waiting for a news report. Traders know that the news report is going to cause the market to move quickly in one direction but they don't know which direction. They may place a stop limit buy order above the market price and a stop limit sell order below the market price. This means that they hope to get filled in a position for a breakout trade when the market starts moving after the announcement.

Stop limit orders are not the same as limit orders. There is more here: Stops