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How Stop-Market and Limit Sell Orders Differ

Article Quant Q&A · Author: alexbougias
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Summary

The document distinguishes a sell limit order from a sell stop order in the context of liquidating a position. A limit sell sets the minimum acceptable sale price and rests on the ask side if its price is above the best bid, so it may remain unfilled. If its price is at or below the best bid, it can execute against available bids, subject to market conditions.

A sell stop instead sets a trigger threshold, generally below the current traded price. When triggered, it becomes a market sell and seeks execution against the available bids. That can help exit a position, but the fill price may differ from the trigger because of slippage or changing market depth. The explanation is introductory: it explicitly sets aside slippage and short-side conditions, and stop-order behavior can vary by venue or order type.

Key ideas

  • A sell limit specifies the lowest price the seller will accept and can remain unfilled when priced above the best bid.
  • A sell stop activates after its trigger condition is met and is described here as becoming a market sell.
  • A triggered market sell seeks available bids, so its execution price can differ from the stop threshold.
  • The explanation omits slippage, short-side conditions, and venue-specific order rules.

Tags

ExecutionMarket microstructureRisk management
Full text
# Difference between Stop sell and limit sell


# Difference between Stop sell and limit sell












Currently studying Market Microstructure. A proposition says that for liquidating a position, we never set a limit sell order, but a stop loss. Practically, shouldn't these be the same (stop loss onserves last price and limit sell the last bid)

## Answer by wildbunny (score 1)

https://quant.stackexchange.com/a/43602

Limit sell is a plain limit sell order, sell stop is a market sell order triggered at the specified price

## Answer by Varun (score 1)

https://quant.stackexchange.com/a/44893

A Limit sell order works by setting the target price where you want to sell. If this target price is less than the current best bid, then yes you are correct, it would be the same as the stop loss order. But if the target price is more than the current best bid, then it would just be a limit order on the ask side and it won't get executed.

A Stop loss order works by setting a threshold price, which is usually lower than the current traded price. Once this price is traded, the stop-loss order is triggered. And once it is triggered, it will act as a market order (not like the Limit Sell) and will sell at the market. So, you will get a fill at the best bid, wherever that is.

I have given a simple explanation ignoring slippage and short side condition.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.