Stop-limit order: peculiarities of use
A stop-limit order is a request to the broker to open or close a trade that will occur in the future but at an already planned price. It includes the functions of limit and stop orders, but it is more efficient when a trader wants to find the best price. This order makes automating part of the trading tasks possible, thus saving time. In addition, understanding and using this type of order will allow you to develop your trading strategy to maximise profits.
Peculiarities of use
Stop-limit orders can be considered as an improved version of standard market orders. Their operating principles are identical. When selling an asset, traders set a price lower than the current one and higher when buying. At the same time, it is necessary to set a limit similar to the previously set price (or slightly higher) when buying and the same or lower when selling.
This approach allows the trader to set not a single value but a range between several values. No slippage can occur in this case, and the order can work within the set corridor.
If a broker has many opening or closing orders, he cannot always close all positions at the desired price. This means that he may not have time to consider all the orders. Using stop-limit orders with price ranges, the number of orders executed can increase significantly.
It is worth noting that when working with a stop-limit order, the broker can guarantee that all orders will be filled within the specified price corridor. However, he cannot guarantee the execution of the order itself, as the desired price level may not appear on the market. If such a situation is likely, it is better to use the standard Stop Loss option.
Advantages and disadvantages of such orders
This type of order is mainly used for technical analysis. It shows efficiency in trading:
– using support and resistance values;
– for a flat break;
– trend-following;
– using news.
As for the advantages of using this approach, stop-limit orders provide a convenient setting of trades and the accuracy of their execution. It is a great tool for working with technical analysis, giving you the opportunity to maximise your profits. However, there is a risk of unfilled orders when using stop-limit orders, so it is essential to clearly understand the price opportunities. In addition, this trading strategy is rarely suitable for novice traders as it requires experience.
At the same time, if you take the time to understand the settings, you can get a reliable assistant to take over some of the routine tasks and increase your productivity in the market.
