Stop limit orders: The stop limit buy - Trading Tutorials
The stop limit buy
The stop limit buy order is executed only when the buy price (ask) reaches or exceeds the stop limit and lies below the set limit at the same time. After exceeding the stop limit, only the limit is relevant for the execution. There can thus be an execution below the stop limit. If stop-limit and limit are exceeded simultaneously, there is no execution until the limit is undershot again.
A trader has discovered an interesting stock, would, however, only like to buy it when the price reaches a new high. The stock is currently at 95 euros but should only be purchased when it reaches 100 euros. The trader thus enters a stop limit buy order with a stop limit of 100 euros. At the same time, however, the trader must also set a maximum buy price for the stock. This is done by entering a limit of 101 euros, for example.
The order is thus only activated when the buy price of the stock rises to 100 euros or higher – in this case, a maximum of 101 euros. As long as the stock is listed below 100 euros, the order will not be executed and will remain in the system until its validity expires.
After the stop limit buy order turns into a limit order upon reaching the stop limit, the order can also be executed under 100 euros, but not above 101 euros, after having reached the stop limit.