How Does a “Stop-Limit Order” Combine the Features of a Stop Order and a Limit Order?

A stop-limit order combines the activation mechanism of a stop order with the price control of a limit order. It works in two stages: first, a stop price is set, which, when triggered by the market, converts the order into a limit order.

Second, the resulting limit order is then placed on the order book at the pre-specified limit price. This allows a trader to control the maximum loss (stop) while also controlling the maximum execution price (limit), though it risks non-execution.