A stop-loss limit order is a powerful tool that combines the features of a stop-loss order and a limit order. It helps you manage risk by automatically placing a sell order when a stock's price falls to a certain level, but with the added control of a minimum execution price. This is particularly useful in the Pakistan Stock Exchange (PSX) when prices move quickly.
To understand it better, let's break down the two components:
Stop Price: This is the trigger price. When the stock's market price drops to or below your set stop price, your order is activated.
Limit Price: This is the minimum price you're willing to accept for your shares. Once the order is activated by the stop price, it becomes a limit order, and your shares will only be sold at or above this limit price.
Key Considerations for Pakistani Traders 🇵🇰
When using stop-loss limit orders on the PSX, keep the following in mind:
Market Volatility: Markets can be volatile. Setting your limit price too far from your stop price may mean your order doesn't get filled in a fast-moving market.
Circuit Breakers: The PSX has circuit breakers that can halt trading in a security if its price fluctuates by a certain percentage. If a stock hits a circuit breaker, your order will not be executed until trading resumes.
Liquidity: In less liquid stocks, there might not be a buyer at your specified limit price, so your order may remain unfilled even after the stop price is triggered. Always consider the stock's trading volume.
Order Priority: At the PSX, orders with the best prices (highest for buy orders, lowest for sell orders) and those that were placed first have priority in the matching process.