A customer places a sell stop-limit order for 300 shares of GHI at 40 stop, 39 limit. The stock is currently trading at $43. If the stock drops quickly from $40 to $38.50 in a single trade, what happens to this order?

Why C — The order is triggered but remains unexecuted as a limit order at $39

A stop-limit order combines the features of a stop order and a limit order. When the stop price of $40 is reached, the order becomes a limit order at $39 rather than a market order. Since the stock gapped down to $38.50, which is below the $39 limit price, the order cannot be filled at the limit price or better. The order remains on the book as an open limit order at $39 until it can be filled at $39 or higher, or until it expires. This illustrates the risk of stop-limit orders: the stop may be triggered but the order may never be filled.