Order Placement

[tdrtw]

If this has been answered before, please post the link and I'll bow down gracefully for not finding it via the search.

Let me explain this via example with Interactive Brokers in mind:

Stock X current price of $50
I place a BUY Stop/Limit order of $52 (buy if it breaks through resistance).

Now why wouldn't someone just say, "hey why I am selling this stock at $50, when this person just trasmitted an Order to buy at $52, I might as well sell it for $52).

Is it because my order is held by my broker and not placed at any exchange until the price of $52 is reached? Thus no one knows I am willing to buy it at $52?

Does this apply also to Stop orders as well?

Cheers,

tdrtw

 

[Charlton]

tdrtw

For detailed explanations of IB's order types go to their website

http://www.interactivebrokers.com/en/trading/orderTypesMatrix.php?ib_entity=llc

A "Limit Order" is one where you will get a fill at the price you requested OR BETTER. A limit order will appear on the order books awaiting a fill.

A "Stop Order" is one where the order becomes a market order once the stop price is reached or penetrated. Once the price is reached then it is up to the market. Thus if you were long on a stock and its current price is $50 but you want to close the position if it dropped to say $45 the stop order would become a market order once $45 was reached, but if the stock was dropping rapidly the position might actually be closed at say $40.

A "Stop Limit Order" is like a combination of the two. Thus you have a stop price and a limit price. In the example above the stop price might be $45 and the limit price $42. Thus when price drops to a trigger price of, say, $45 it becomes a limit order to sell at $42 or better. Now this guarantees the price at which you would sell, BUT it does not guarantee a sale (as opposed to the stop order which guarantees a sale, because it is a market order).

In the example you gave I think what you really want is limit-if-touched or market-if-touched. Taking the latter as an example, if the trigger price is £52 the order will remain in the system until $52 is touched. Only then is it submitted as a market order. Obviously a limit-if-touched would be safer.

If you read the IB descriptions and examples carefully you should be able to fathom it out.

Charlton