What is Sell Stop Limit order in Forex trading?
Now that we know what Buy Stop Limit is, it’s only natural to talk about its selling counterpart. The pending order called “Sell Stop Limit” combines Sell Stop and Sell Limit orders, and is currently only available on the MetaTrader 5 platform. This pending order type allows a trader to specify a price below the Current Price of the instrument they are is trading. That specified price below the Current Price is simply referred to as Price. If and when Price is reached, a Sell Limit order is automatically placed at a higher price level. This higher level is called the Stop Limit price.
In this context, the Sell Limit will be placed only if the Bid price reaches the Price. We are referring to it as Bid price, of course, because we are looking to sell. Once the Bid price rises up to the Stop Limit Price, the Sell Limit order is triggered and the position is opened. So, for example, say a trader was looking to sell EURUSD and the current price is 1.3050, he may decide to put the Price at 1.2950 because he believes it will reach that point. However because he believes that it will go up before continuing to decline, he places a Sell order with a Stop Limit Price at 1.3000.
The Sell Stop Limit is used by traders who anticipate that the price movement of their instrument will experience a temporary increase before it continues to decline.
What is the difference between a Sell Stop and a Sell Limit?
A Sell Stop Order is an instruction to sell when the market price is lower than the current market price.
A Sell Limit Order is an instruction to sell at a Price that’s higher, not lower than the current market price.
In a Sell Stop Limit Order the two are combined.
To create a Sell Stop Limit Order you’ll set two price points:
- Stop: this activates the Limit Order to sell
- Limit: this specifies the lowest price you’ll accept
When should I use a Sell Stop Limit?
A Sell Stop Limit is mainly for when you expect the price to go up for a while, then start to fall. It can help you to:
- Fill your orders at better prices
- Manage your investment risk, while you’re away from your trading screen
- Control the timing of your orders, and price at which they’re filled
Is there a ‘Buy Stop’ equivalent of the Sell Stop Limit?
Yes, the Buy Stop Limit works just like the Sell Stop Limit, but it’s an order to buy if the price rises to, or above, the Stop Price. The two price points you’ll need to set are:
- Stop: this activates the limit order to buy
- Limit: this specifies the lowest price you’ll accept
How far apart should the Price and Sell Limit be in a Sell Stop Limit?
If the price of the orders is too narrow, they could be constantly filled due to market volatility, so don’t be too strict with your price limits. Buy Stop Limit Order prices should be at levels that allow for the price to fluctuate while still giving you protection from losses.
Any disadvantages to using Sell Stop Limits?
One potential downside with this type of order is there’s no guarantee that an execution will occur. The price generated by the market may never reach the limit price you’ve set.
How long does a Sell Stop Limit last?
If it doesn’t trigger because the Price isn’t reached, your Sell Stop Limit will run until the time you set for it to expire. That could be at close of market, or it could carry over to further trading sessions. You can cancel a Sell Stop Limit at any time.
