Stop limit order

An instruction carrying two prices. The first is the trigger, the level at which the instruction wakes up. The second is the limit, the worst price that will be accepted once it has. Reaching the trigger does not deal anything: it submits a limit order, which then fills at the limit price or better, rests unfilled, or expires according to its time in force.

Its purpose is to bound the difference between a trigger and a fill. A plain stop becomes a market order and accepts whatever price is available, which prioritises getting out over the price obtained. A stop limit reverses that ranking. The cost of the reversal is exact and severe in one specific case: where the market moves through both the trigger and the limit in a single step, as in a gap, the limit never fills and the position remains open with the market beyond it.

That case is why the choice between the two is a genuine disagreement rather than a preference. Using a stop limit as a protective exit exchanges a bounded uncertainty, the price the exit obtains, for an unbounded one, whether the exit happens at all. Which exposure is larger depends on how the instrument behaves, and instruments that gap over weekends or around results are precisely where the difference bites. Practitioners split on it, and the split runs along that line rather than along any general principle.