What is stop-limit or trigger-limit order?
A stop-limit a.k.a trigger-limit order is a specialised conditional order that combines features of both stop and limit orders. It allows investors to set a specific price range for their trades:
Stop/Trigger Price: This initiates the order once reached. For buying, it's set above the current market price and for selling, below.
Limit Price: This is the worst price you're willing to accept for your order.
When the market hits or breaches the stop price, the order becomes active and seeks execution at a price within the range between the stop and limit price. If it doesn't fall within this range, the order remains unfulfilled.
For example: Suppose you own shares of an Indian firm currently trading at ₹3,000 each. If you wish to sell them for at least ₹2,600 but not lower than ₹2,700, set a stop-limit order with a stop price at ₹2,700 and a limit price of ₹2,600. Should the share price decrease to or below ₹2,700, the order activates and will try to execute between ₹2,700 and ₹2,600. If it plunges directly below ₹2,600 without hitting the range, the order remains pending.
For a comprehensive guide on executing trigger-limit orders, please refer to this article.