Stop Loss Market Vs Stop Loss Limit Order

A stop loss order is placed as an automatic ‘exit’ option from a loss trade. Stop loss orders are an integral part of short-term and intraday trading strategies and help take emotions out of play while taking ‘exit’ decisions.

A trader approaches a trade with a pre-determined loss tolerance limit and by setting up a stop-loss order (mentioning a trigger price), he automatically exits the trade once the tolerance limit (i.e the trigger price) is breached. A stop-loss order helps minimise losses in a market that is rapidly moving in a direction opposite to the one the trader is betting on.

Stop loss orders are of the following two types:

1. Stop Loss Market (SL-M):

In case of a SL-M order, once the trigger price is breached, a market order will be sent to the exchange and the order will be executed either at the trigger price or at the best available price. A stop loss market order will ensure a guaranteed execution; however, the execution may or may not be at the trigger price.

2. Stop Loss Limit (SL-L) Order:

In case of a SL-L order, one needs to input a ‘trigger price’ and a ‘limit price’.

For a SL-L Buy order, the trigger price cannot be greater than the limit price. Once the trigger price is reached, a buy order will be sent to the exchange. The shares will however not be bought at a price higher than the ‘limit’ price.

Similarly for a SL-L Sell order, the trigger price cannot be lower than the limit price. Once the ‘trigger price’ is breached, a limit order will be sent to the exchange. The sell in this case would not be executed at a price lower than the ‘limit’ price.

In case of a Stop Loss Limit Order, there is however no guaranteed execution as there may or may not be buyers/sellers available at the given price range.