Stop-Limit Order

What is a Stop-Limit Order?

A stop-limit order is a trade on the currency market that brings together the benefits of a limit order and the benefits of the stop order, which orders must first be defined if we are going to understand the stop-limit order. A stop order is an order to exchange a currency pair once the price reaches a certain level. If the pound vs. dollar rate is currently GBP/USD 1.2450 and you want to trade in your pounds for dollars when the price reaches GBP/USD 1.2455, then a stop order with the market will automatically make the exchange once that price is reached whether or not you are present to execute it yourself. A limit order sets a limit on the price at which you are willing to exchange a currency pair. For example, today you want to exchange currency at a rate of GBP/USD 1.2460. A buy limit order would exchange your pounds for dollars as long as the rate is 1.2459 or less. A sell limit order will exchange your dollars for pounds as long as the currency pair is priced at 1.2461 or more. Once the 1.2460 price is reached, all buying and selling stops whether or not you are present.

We are now able to see how a limit order's parameters are joined to those of stop order within the stop-limit order. A stop-limit order enables you to exchange currency from one price you establish (stop) up and until a price that you desire (limit). For instance, you might want to exchange the pound for dollars beginning at a rate of GBP/USD 1.3570 ending at GBP 1.3580. A buy stop-limit order would begin to exchange your pounds for dollars when the rate reaches 1.3570 and end as soon as it reaches 1.3580 whether or not you are present. Contrariwise, if we look at the prices in the other direction, a sell stop-limit order would begin to exchange pounds for dollars when the price GBP/USD 1.3580 is reached and end the exchange when the price hits GBP/USD 1.3570. Again this is true whether or not you are there to execute the trade yourself.