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sl and slm order

Difference between SL order and SLM order

Difference between SL order and SLM order – Explained

Many traders in the Indian Stock Market are confused regarding the difference between SL and SL-M order and which one should they use. In this post, all your doubts regarding the SL and SLM order types will be cleared.

So what’s the difference between SL order and SLM order? SL Order is a Stop Loss Limit Order in which you need to specify price as well as trigger price whereas SLM order is a Stop Loss Market Order wherein you need to specify only trigger Price. Hence the difference is in the execution of the orders.

 

difference between sl and slm order

 

Both SL and SLM orders have their advantages and disadvantages. Depending on the situation, you need to decide which type of order you must choose.

Let’s start with the basics.

A stop loss is an order that helps you to automatically close your buy/sell trade at the stated price. This helps to stop the losses and protect your capital when the market goes against you.

There are 2 kinds of Stop Loss orders namely:

  1. SL (Stop Loss Limit) Order
  2. SLM Order (Stop Loss Market) Order

SL order vs SLM order example

Let’s understand the difference between these two types of stop-loss orders with examples.

SL and SLM for Buy Position

In this case, since you have a buy/long position in the market, your stop loss order would be a sell order.

So suppose you have bought a stock for Rs 500 and you don’t want to lose more than 2% of your capital in the trade, you would like to set a stop loss at Rs 490.

Now you have two choices, you can either place a SL order or a SLM order.

As mentioned above, in the case of SL Order you need to specify price as well as trigger price whereas in SLM order you need to specify only trigger Price.

SLM order – You will put a sell SLM order with the trigger price specified as Rs 490. As soon as the stock price hits Rs 490, your sell order will be sent to the respective exchange, as a market order and the stocks will be sold at the market price.

 

SL order for buy position example

 

SL order – You will put a sell SL order with the price and the trigger price specified. Now it is obvious that your order needs to be sent to the respective exchange before it is executed, hence the trigger price needs to be greater than or equal to the price for the sell order.

Now you can set the trigger price as Rs 490.5 and sell price as Rs 490. This gives you a range of Rs 0.5 or 50 paise. Immediately after the price level of Rs 490.5 is breached, your sell order is sent to the exchange as a limit order.

SL order for buy position example

 

 

 

SL and SLM for Sell Position

In this case, since you have a sell/short position in the market, your stop loss order would be a buy order.

So suppose you have shorted a stock at Rs 500 and you don’t want to lose more than 2% of your capital in the trade, you would like to set a stop loss at Rs 510.

SLM order – You will put a buy SLM order with the trigger price specified as Rs 510. As soon as the stock price hits Rs 510, your sell order will be sent to the respective exchange, as a market order and the stocks will be bought at the market price.

SL order for Sell Position example

 

SL order – You will put a sell SL order with the price and the trigger price specified. You can set the trigger price as Rs 509.5 and buy price as Rs 510. This gives you a range of Rs 0.5 or 50 paise. Immediately after the price level of Rs 509.5 is breached, your buy order is sent to the exchange as a limit order at Rs 510.

 

Important Points to Keep In Mind

  • For stop-loss orders you do need any additional margin, whatever margin is available with you, if you a position you can place a stop loss for it without seeking any extra margin.
  • The chances of execution are higher for a SLM order as compared to a SL order.

 

Alternate use of SL and SLM order

There is another way to use SL orders. It can be used to enter into positions. A lot of people like to enter positions above or below a certain price (for eg. support or resistance)

For Long Position

If you have a view that a stock will give a breakout above a certain resistance level say Rs 100. You can use a SL or SLM order to enter a long position immediately after that price level is breached. So keeping a buffer of Rs 0.5 or 50 paise, you can place a SLM buy order at Rs 100.5 and immediately after this price level is breached, your order will be executed at the market price.  This allows you take advantage of the breakout.

For Short Position

If you have a belief that a stock will give a breakdown below a particular resistance level say Rs 80. You can use a SL or SLM order to enter a short/sell position immediately after that price level is breached. So keeping a buffer of Rs 0.5 or 50 paise, you can place a SLM sell order at Rs 79.5 and immediately after this price level is breached, your sell order will be executed at the market price.  This allows you take advantage of the breakdown.

 

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2 thoughts to “Difference between SL order and SLM order”

  1. It is a good article. It gives a lot of clarity. There are some errors have crept in. While explaining SL and SLM orders for long position, BUY is given instead of SELL. Similarly for SL and SLM orders for Short position, SELL order is given instead of BUY order. Other wise, the concept is explained very beautifully.

    1. Hello,

      Thanks for your comment. The second part of the article shows how SL and SLM orders can be used to enter into positions, so it will buy for a long position and sell for a short position.

      Hope this clarifies.

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