Stop-Limit Order
A conditional order that triggers at a stop price and then executes only within a specified limit price range.
What is Stop-Limit Order?
A stop-limit order is a two-stage conditional order that combines the features of a stop order and a limit order. When the security reaches the specified stop price, the stop-limit order is activated and becomes a limit order that will only execute at the limit price or better. Unlike a simple stop order—which becomes a market order when triggered and may fill at an unfavorable price in a fast-moving market—a stop-limit order provides price protection by ensuring the investor will not pay more (or receive less) than the limit price. The trade-off is that the order may not execute at all if the market price moves through the limit before the order fills, leaving the investor exposed to continued adverse price movement. Stop-limit orders are widely used for risk management and profit protection in volatile securities where gap-downs between trading sessions are possible.
Example
An investor holding a stock at $50 sets a stop-limit order with a stop price of $45 and a limit price of $44. If the stock declines to $45, the stop triggers and the order becomes a limit sell at $44 or better. If the stock gaps below $44 overnight, the order will not fill, leaving the investor holding a position that may continue to fall.
Source: Investopedia — Stop-Limit Order