Its usually used to protect yourself from loses. If you buy a stock say at .15 and put a stop limit in at .10 then if your stock starts dropping in price you protected yourself (limit your loses) by putting that in and it will hopefully sell at .10 once the stop limit is reached. It becomes a limit order at that point. \A better choice might be in a fast moving stock is a stop which becomes a market order when the stop is reached. In the example above if a stock dropped from .15 to .08 then the stop limit is reached but you still don't sell because your limit order is set at .10 but on a stop of .10 when it drops to .08 the market order will sell it at .08 making sure you was able to sell just at a higher lose.
By the way it works on buy orders too. Buy Stop Order — Investors typically use a stop order when buying stock to limit a loss or protect a profit on short sales. The order is entered at a stop price that is always above the current market price.
Just remember
Stop Limit - turns into limit order after it is meet
Stop - turns into market order once stop is meet
Def>
Stop Limit
Choosing the terms of Stop Limit indicates that you want this order to seek an execution at a specific price once that "stop limit" price has been traded at or through. The order becomes a Limit order at the same price once the "stop limit" price has been reached. Stop Limit orders are accepted on listed stocks, most options, and selected Over-the-Counter (OTC) stocks. However, in a fast-moving market, it may not be possible to execute your order at your limit price, so you may not have the protection you sought
another def>
Stop Limit
A Stop Limit order indicates that you want your order to seek an execution at a specific price once that "stop limit" price has been reached, therefore becoming a Limit order at the same price once the stop limit price has been reached. Each market center determines if the order is activated either by an execution at the stop limit price or the appropriate quote. For listed stocks, the most common practice requires that an execution actually occur at your stop limit price. For Nasdaq/OTC stocks, your stop limit may be triggered on either an execution at that price or at the appropriate quote. For equity sell stop limits, the appropriate quote is the bid price; for equity buy stop limits, the appropriate quote is the ask price. Stop Limit orders are accepted on listed stocks, most options*, and selected over-the-counter (OTC) stocks. However, in a fast-moving market, it may not be possible to execute your order at your limit price, so you may not have the protection you were seeking
[This message has been edited by Ric (edited October 15, 2004).]
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