A stop-loss limit can be helpful for those who want to manage risk within a desired range, unlike a stop-loss market order which gets executed immediately at the market price once triggered (not allowed in options as per exchange). When using a stop-loss limit order, it’s recommended to set a range sufficient to prevent situations where the stop-loss is triggered but the order remains open.

Let’s take a step back and see how a stop-loss limit order work. For example, if you set a sell stop-loss order with a trigger price of Rs. 91 and a limit price of Rs. 90.90, here’s what happens: when the order is triggered at Rs. 91, a sell limit order is sent to the exchange for execution at the best available price of Rs. 90.90 or higher, but not below the limit price.

The risk in these situations is because of sudden market declines caused by volatility, expiry, lack of liquidity, special events, and so on. If there is high bid-ask spread and there are multiple market orders, the scrip price may jump a point or two, and there is a possibility that between the time your order is triggered and limit price order goes for execution, the LTP is already below your limit price and hence your order goes in pending.

Now the question is whether there is a guaranteed way to prevent this situation. Well Yes & No. You may keep a very high gap between your trigger and stop loss price, to ensure your limit order doesn’t get skipped but then a very high range defeats the purpose of a tight stop loss. You can take the best estimate for a tight gap by checking for liquidity of the scrip you are trading in, and the bid-ask spread for the scrip. Low liquidity will most probably have high bid-ask spread, and would need a higher gap. A highly liquid scrip will have lower bid-ask spread and can have lower gap. And you may also take into account sudden moves in the market and keep the gap a few points higher to be on the safe side.