How Does the “Stop-Limit” Order Type Mitigate the Risk of Slippage?

A Stop-Limit order has two prices: the stop price and the limit price. When the market hits the stop price, the order becomes a limit order at the specified limit price.

This ensures the trade will not execute at a price worse than the limit price, thus capping potential slippage. However, the trade may not execute at all if the market moves too fast.