Stop Market Order vs Stop Limit Order. http://www.financial-spread-betting.com/strategies/stop-loss-strategies.html PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! Which Type of Order Should be Used? This is the difference between losing more than you expect and keeping things under control. There are two types of stop loss orders; dependent on the broker you're using they might treat them differently (not all brokers offer these or they might call them something differently). A stop order helps to limit your loss.
Stop Market Order - Stop market orders are set at a particular price. If this price level is hit, the order will be actioned and be executed as a market order. Market orders will always be executed if the market hit the price specified. As such with a market order the trader will always get out of the loss making trade. In times of high volatility, a stop loss market order may suffer some slippage and be executed at a price worse than you wanted.
Stop Limit Order. - these are stop orders that utilise stop limit orders. Such orders are placed at a particular price level and if the market hits the order price, the order will be filled as a limit order. Limit orders are only filled at the order price or better. The downside is that limit orders may not always be filled. As such a stop loss limit order may not always get you out of a losing trade. When a market is moving rapidly the stop loss limit order can remain pending exposing you to bigger losses. Of course at time this can also save you money.
Why would an investor ever purchase a stop order instead of a stop limit order?
Stop orders are used to “stop” you out of a trade. Either by locking in a profit or a loss. but in either case, it is a defensive move in the market. In deciding whether to use a Stop MARKET order or a Stop LIMIT order will greatly depend on the liquidity of the stock and the volatility of the stock during the trading period. If a market trading up is looking like it will breakout to the upside, other market players will look to buy the stock when/if it breaks out. a stop MARKET order would be best in this case.
If your stock is trading in a tight range but you want to enter a stop order so you won’t be disturbed while doing something else - but you have no concern of a major breakout on the upside, using a stop limit order may be fine.