• New to T2W? Welcome! This forum contains a list of the most frequently asked questions (FAQs) that new members want answers to. We don't allow new threads to be created so if you have an idea for a new FAQ please post it in the How the FAQs work thread.

FAQ What's the Difference Between Stop Loss and Limit Orders?

A stop loss is an order you give your broker to "stop losses." The golden rule of stock market speculation is to keep risk always under control. To do this, you must know how much you are willing to lose before buying your shares.
A limit order is an instruction given to execute an operation at a level that is more favorable than the current market price. ... Limit orders allow you to specify the minimum price at which you wish to sell or the maximum at which you wish to buy.
learning how to set my stop-losses properly was one of the biggest benefits for me as far as loss prevention. When i first started my biggest losses came when i was trading on margin and didn't set my stop correctly.
Yes stop loss is a great help in minimizing losses, however I have seen many traders going trading without it too.
Stop-loss and stop-limit orders can provide different types of protection for both long and short investors. Stop-loss orders guarantee execution, while stop-limit orders guarantee the price.
The limit order is visible to the market and instructs the broker to fulfill your order at a specific price.
For example : A trader who wants to open a buy position at 135 would place a buy/limit order with a limit price of 135 . If the price falls to 135 or lower, the limit order would be triggered and the order would be executed at 135 or below. If the stock fails to fall to 135 or below, no execution would occur.

The stop loss order is not visible to the market and will trigger a market order once the stop price has been met.
For example: If a trader has opened a position at 140 and the price subsequently rises to 144, he will place a stop-loss order (according to his risk appetite) at 138 so that he can restrict his further loss at only 2 units.
SL is a stop order - it sells at a lower price and buys at a higher price. TP is a limit order - it sells at a higher price and buys at a lower price.

Example: you bought at $10, and set SL to $5. This price is lower than $10. Your SL order will sell and save you from losing even more.

Example: you bought at $10, and set TP to $15. This price is higher than $10. Your TP order will sell and make you richer than before ;).
Limit order: Investors use limit orders to lock in the price they want because limit orders are guaranteed to execute (if they execute at all) at a particular price or better.

Stop loss: The intent of a stop order is to limit losses. If a stock’s price is moving in a direction opposite of what the investor would like, a stop order places a ceiling on potential losses.