Stop-limit order
What is a stop-limit order, and why might it leave you exposed when the market moves fast?
In plain words
A stop-limit order combines two prices. The stop price triggers the order, and the limit price sets the worst price at which it will fill. If the market gaps past the limit, the order may not fill at all, leaving the position open.
Why it matters
It caps how badly you can be filled, replacing one risk with another. A plain stop may execute far below its trigger in a fast move; a stop-limit protects the price but offers no guarantee of execution, so the position can survive the move it was meant to exit.
In a real week: BTC, week of 15 July 2019
In the week of 15 July 2019, BTC ranged 22.52%, from a low of 9060.00 on Wednesday at 11:00 UTC to a high of 11100.00 on Monday at 23:00 UTC. The worst day, 16 July, fell 12.87%, and the largest one-hour move was 9.37% on Thursday at 14:00 UTC. A stop-limit placed near Wednesday's low could have been skipped entirely by moves of that size.
A common mistake
Assuming a stop-limit protects you without cost. The limit price is a ceiling on execution quality, not a promise of exit; in a fast market the order may never trigger or fill.