A stop-limit order is a conditional trading order utilized in cryptocurrency trading, which integrates the excellent features of both the stop order and the limit order. As such, it is a handy tool for traders to automatically buy or sell a specific cryptocurrency asset after a predetermined price level is achieved.

### Stop-Limit Order vs. Limit Order

A limit order is an order to buy or sell a specific amount of cryptocurrency at a specified price. By placing a limit order, you determine the maximum price readiness to pay for a cryptocurrency or the minimum price for which it is sold. Traders mainly set sell limit orders above the current market price and buy limit orders below the current market price. In case you place a limit order at the current market price, it is pretty much going to be accomplished within seconds (except for an illiquid market).

A stop-limit order closes a trade when a distinct price (the stop price) has been attained, and then makes the trade at a previously designated limit price. The limit price refers to the amount that you will at least or the maximum amount that you will accept when buying.

While the fundamental difference is that a limit order states the price beyond which you want to trade, a stop-limit order states the price beyond which you want to trigger a trade and execute it.

### How a Stop-Limit Order Works

You will have to determine two specific price points in order put together a stop-limit order:

Stop Price:

This will be the price triggering the process of buying a limit order. As soon as the market price gets to this price, the limit order will be set up itself.

Limit Price:

This is the price against which the limit order will be activated once the stop price is achieved.

### Examples of Buy and Sell Stop-Limit Orders

Buy Stop-Limit Order:

Let's say BNB is trading at $300, and you think an upward trend is going to start once it goes above $310. You can establish a buy stop-limit order with a stop price of $310 and a limit price of $315. As the BNB reaches the $310 mark, a limit order is placed to buy BNB at the price of $315. The order would be filled at the price of $315. If the market price goes past the threshold too fast, the order may not be fully fulfilled.

Sell Stop-Limit Order:

You have bought BNB for $285 and it is now at $300. In order to protect your gains, you established a stop-limit order with a stop price of $289 coupled with a limit price of $285(your initial price). In the event that the price falls to $289, a limit order will be done to sell BNB at $285. The order shall be filled at $285 and a higher amount.

In general, it is safer in the case of selling orders to have the stop price at a higher position than the limit price. However, for buy orders, it is advisable to set the stop price slightly lower than the limit price for increasing the chances of the limit order being filled after it’s triggered.

### Advantages of Stop-Limit Orders

Customization:

One of the main features of stop-limit orders is their ability to be tailored by the user, making them both the stop price (the trigger price) and the limit price (the execution price) compulsory.

High Precision:

By doing this, you lower the chance of entering less favorable trades by making the most specific bids or asks that you feel comfortable with.

Risk Management:

Traders can have a better deal since they can gain, for instance, by utilizing automatic buy/sell orders when the situation is influenced by a high level of uncertainty.

### Risks of Stop-Limit Orders

Execution Risk:

The action may fail to materialize if the market price shifts rapidly and bypasses the stop price.

Price Risk:

The market price can execute at a less good price than what was planned as a limit order, if the stop price has been turned on and the market price changes rapidly.

Timing Risk:

During high volatility or low liquidity, the limit order may not execute at the desired price or at all.