A stop-limit order is designed to mitigate risks or enter into a better market position. It works
similarly to stop order, but it is combined with a limit order functionality. So, when you place a stop-limit order, you set a stop price where the order has to be triggered, and a limit price where
an order has to be filled.
It’s important to note that this type of order will be executed between stop and limit prices, but at the same time, it doesn’t guarantee order fill, if a market doesn’t provide sufficient buy/sell opportunities.
If the current market price doesn’t hit the stop price, then order doesn’t get triggered. At the
same time, the market can trigger the order, but it will be left unfilled in case the market turns back quickly. The same situation applies to triggered stop-limit orders, where price simply goes over limit order so fast, that it won’t be entirely filled.
In order to understand this process better, let’s break it down. Let’s suppose you decide to sell and you place the stop-limit order, setting a stop at $5,000 and limit at $4,950. If the market goes below $5,000, the stop gets triggered, and order gets filled in $50 range at the best selling price which doesn’t surpass $4,950.