In our previous guide, we explained that limit orders are orders to buy or sell a specific asset at a predetermined price — helping traders avoid the risks associated with sudden price movements.
Now, let’s explore how stop loss orders differ from stop limit orders.
Order Type: Stop Loss
Recap: A stop order is an instruction to buy or sell an asset when its price reaches a certain level, known as the stop price. Once the stop price is reached, the order becomes a market order and is executed at the prevailing market price. A limit order, on the other hand, is an instruction to buy or sell an asset at a specific price or better.
For a deep dive into stop loss orders and how to use them on Drift, visit our stop loss & take profit guide.
Order Type: Stop Limit
A stop limit order is a type of order used in trading that combines the features of a stop order and a limit order.
It allows traders to set a stop price to trigger the order and a limit price to control the maximum price at which the order will be executed. Once the stop price is reached, the stop limit order becomes a limit order, which means that it will only execute at the specified price or better.
For example, a trader buys SOL-PERP at $22 and wants to protect his downside risk when SOL drops to $20. In this case, the trader could place a stop limit order to sell his SOL-PERP position with a stop price of $20 and a limit price of $19.50. If the price of SOL drops to $20 or below, the stop limit order becomes active, and the trader's order will be executed for $19.50 or more.
Note: if the "Post" order flag is set, then the limit order will be filled at the specified limit price with a variable rebate. This variable rebate comes from the liquidity surplus from the taker fills that cross after accounting for the filler reward (which is capped at 5bps). Read more about Drift’s order flags in our docs.
Stop Limit On Drift
On Drift, you can choose between two types of stop orders: stop limit and stop market.
Both stop limit and stop market orders are triggered based on your stop price. However, a stop limit order, after triggered, will create a limit order. A stop market order on the other hand will create a market order when triggered.
“Stop limit” as an example: We’ll buy SOL-PERP at $22, so we key in $22 at “Limit Price”. To protect our downside, we key in $20 at “Trigger price”. We complete our order by entering the order size and confirming our trade.
In case SOL-PERP rises in price, we benefit and can decide what to do next. If SOL-PERP goes down to $20 or below, our position will be closed and sold as a limit order, helping minimize losses.
If you’d like to learn more on how Drift’s limit orders work, take a look at these articles:
- Drift v1 to v2: What’s Changed? Drift v1 to v2: What’s Changed?
- Drift v2’s Hybrid Liquidity Mechanism
- Just-in-Time (JIT) Liquidity Mechanism
Market & Limit Orders: Risks
It's important to note that orders are not foolproof, and they do not guarantee that a trader will be able to sell at the specified price. In fast-moving markets, it's possible for a financial asset to gap above or below the specified trigger price, causing the order either not to be filled (limit order) or filled at a different price (market order) — which might be risky. Traders should always consider their own risk tolerance and investment goals when deciding whether to use orders.
Stop Loss vs Stop Limit
Start Trading On Drift
If you’d like to get started with Drift, check out our guide on How To Sign Up & Log In To Drift Using Email.
In case you’re new to Solana, these guides are for you:
- How To Set Up A Wallet To Trade On Drift
- How To Deposit & Withdraw Funds On Drift
- How To Transfer Funds From A CEX Onto Drift
- How To Bridge Assets To Trade On Drift
For more, head over to our Learn hub.