Your stop loss will be instantly triggered and you will sell at $0.20, not $0.50 like you wanted. During after hours, a bunch of whales dump the stock, and by open tomorrow morning, it is at $0.20. Now, imagine the day closes with the price at $0.55, and your stop price is $0.50. However, there are exceptions.įor example, in the stock market, there is after-hours trading when you can't trade, but special people can. Now, this means that usually your position will be sold basically right at the stop price (or very close, like $0.4998), because if your position is being sold to the highest bidder the moment the price touches your stop price, the highest bidder will basically be buying at the stop price. Instead, it is a trigger: once the market price passes your stop price, then your position will be sold instantly to the highest bidder in that moment. With a stop order, the stop price is not a threshold below which you will accept a trade. It's basically like an open offer to sell at some price. So, here is the difference between a limit order and a stop order: in a limit order, the limit price is just a threshold above which you will accept a trade and below which you will not. So, if you set the stop price to $0.50, then once the market price passes below that threshold, your position will be sold at the best available market price in that moment (which will usually be very very close to the stop price you set). A stop order will trigger a sell at the best available market price once the stop price has been reached. That's were stop orders (aka stop-losses) come in. So, if you set a sell limit for $0.50 while the price is currently $1.00, it would be instantly triggered and your position would be sold at $1.00, because $1.00 satisfies the condition of being equal to or better than the $0.50 limit price. A sell limit order wouldn't work here, because a limit order is triggered so long as it can be filled at the limit price or better.
STARTERS ORDERS 6 GUIDE FREE
You're basically publishing an offer to the world, saying "if ever anyone wants to buy at $1.50 or higher, I am down, and my computer will automatically do the trade with you".īut imagine you also want to automatically sell if it gets to $0.50 or lower, because you believe that would indicate free fall and you'd want to just cut your losses. It will only fill if you can get a price equal to or better than the limit price. This is simply an order that will be automatically triggered at the first opportunity to sell at or above the limit price you chose, $1.50. You decide that if it hits $1.50, you want to sell. Perhaps you hold a bunch of some asset currently at $1. The third one combines the concepts of the first two. Ok, so there are limit orders, stop orders, and stop-limit orders.
I think a lot of beginners (both in the stock market and crypto) struggle with these concepts, so I thought I would post the entire explanation as a guide. Someone in the daily said they couldn't wrap their mind around stop limit orders, so I replied to them with what ended up being a rather massive explanation for the 3 types of orders in the post title.
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