What Is a Limit Price and Trigger Price in Stop-Limit Orders?
Learn how limit price and trigger price work together in stop-limit orders to manage trading risk and control execution prices.
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A limit price is the specific price at which you want to execute a buy or sell order, while the trigger price is the price that activates a limit order in a stop-limit order. For example, in a sell stop-limit order, if the market price drops to the trigger price, the limit order is activated to sell at the limit price. This combination helps you manage risk and control the prices at which your orders execute.
FAQs & Answers
- What is the difference between a limit price and a trigger price? The limit price is the specific price at which you want your buy or sell order executed, while the trigger price activates the limit order within a stop-limit order.
- How does a stop-limit order work? A stop-limit order combines a stop price (trigger price) that activates the order and a limit price that sets the maximum or minimum price at which the order can be executed.
- Why use a stop-limit order instead of a market order? Stop-limit orders help control the execution price and reduce risk by preventing trades at undesirable prices, unlike market orders which execute immediately at current prices.