stoploss order

[nazar2k4]

hello i want to what is stoploss order

 

[shadowninja]

It means that the position will be closed no matter what.

Stop loss order - Traderpedia
Stop loss - Traderpedia

If you're new to trading, I would use a stop loss as it will save you losing money while you're busy getting yourself more disciplined.

 

[arabianights]

To expand what my distinguished fellow contribuor means by "no matter what", imagine that you are Mrs. Tweedy from chicken run, and you are short one egg and have set a stop-loss order with a limit of one pound, even though you usually sell your eggs for a penny each. If the only other seller in the market is a chicken, who values her eggs at eighty pounds each, you had better hope that no
one is that desperate for an egg - if someone buys an egg for above your one pound stop, you will immediately buy your egg back from the chicken for eighty pounds, which is an enormous lost.

Contrast this with a stop-limit order with a stop and a limit of one pound. In this case if your stop is breached then you will try to buy your egg back, but only at up to a pound an egg, reasoning that you can make delivery of the egg otherwise, stealing it from a chicken on your farm that has not yet earned her ITM.

In a real life market there ought to be buyers and sellers at better prices than the above, but this is by no means guaranteed. Hopefully you can see the pros and cons fairly clearly.

 

[new_trader]

hello i want to what is stoploss order

There are 3 main types of orders used when OPENING and/or CLOSING a position, they are:

1) MARKET order
2) LIMIT order
3) STOP order

- A MARKET order is a BUY or SELL order at market price.
- A LIMIT BUY order is placed BELOW market price
- A STOP BUY is placed ABOVE market price
- A LIMIT SELL order is placed ABOVE market price
- A STOP SELL is placed BELOW market price

If you have an open a position that you want to close you would place an order on the opposite side of the open order. EG/ You SELL to close an open BUY position.

A STOP order can be used to open or close a position depending on where it is placed and whether you have a position already open. There isn’t any such thing as a ‘stop loss’ order specifically. A stop loss or protective stop order is essentially the name you use to refer to an order when it is used to protect yourself against misjudging market direction on an open position. ie/ Close an order when the market moves in the opposite direction to the one you anticipated.

 

[arabianights]

I don't like to contradict you new_trader, but there *is* such a thing as a stop-loss order. A stop-loss order will take market when the stop is triggered. That it takes market price rather than being limited is potentially extremely important and should not be ignored. It contrasts with a stop-limit order.

In general, your breakdown of order types is rather specialised. There is nothing wrong with that, but it helps to make it clear.

 

[Rhody Trader]

I don't like to contradict you new_trader, but there *is* such a thing as a stop-loss order. A stop-loss order will take market when the stop is triggered. That it takes market price rather than being limited is potentially extremely important and should not be ignored. It contrasts with a stop-limit order.

No, new_trader is correct. Technically speaking, there is no such thing as a stop loss order. It's just a stop order, which is what you described. A buy stop is for a price above the current market price and a sell stop is for a price below the current one. It can be used for exiting a position for for entering one.

It has become known as a stop loss because that is how so many traders use it.

 

[arabianights]

With the greatest respect, I promise you that there is such a thing as a stop-loss order; indeed on my copy of Hull it is defined on page 34. The key thing about a stop-loss order is that it takes *market price* after it is triggered. I believe that is important to understand this before placing the order. I'm sure that you would agree?

 

[RichieE]

No, new_trader is correct. Technically speaking, there is no such thing as a stop loss order. It's just a stop order, which is what you described. A buy stop is for a price above the current market price and a sell stop is for a price below the current one. It can be used for exiting a position for for entering one.

It has become known as a stop loss because that is how so many traders use it.

Are you guys sure that you're not arguing the toss betwee a stop order and a stop limit order?

 

[shadowninja]

Is my post incorrect? I can delete it to avoid confusion.

 

[Rhody Trader]

With the greatest respect, I promise you that there is such a thing as a stop-loss order; indeed on my copy of Hull it is defined on page 34. The key thing about a stop-loss order is that it takes *market price* after it is triggered. I believe that is important to understand this before placing the order. I'm sure that you would agree?

If you are referring to the Hull of derivatives text book fame, then you should know it means absolutely nothing to most T2W folks. His is a book written by an academic and designed for use in academic programs. There aren't too many of us here who have been through university finance programs (I happen to be in that distinct minority), and you won't here it mentioned too often by options traders as a must read.

Are you guys sure that you're not arguing the toss between a stop order and a stop limit order?

I, for one, am not confusing the two, though arabianights might be. The way he is differentiating the stop loss order from the stop order sounds very much like the difference between a stop order (an order that becomes a market order once the stop price is hit) and a stop limit order (an order which becomes a limit order once the stop price is reached).

A stop loss order is nothing more than a stop order which is used to exit a trade when the market goes against it. Adding the "loss" part to it is nothing more than traders describing how they are using the stop order. It's just like how a trailing stop describes a kind of stop order which is used to ensure that profits are not given back.

 

[Depth Trade]

What about volume to exit the position? It seems the confusion is whether one would be completely filled on a Stop 'loss' order or not.

If one had a stop that was hit, would one want to still be in position at a greater loss, because there wasn't the immediate volume on original price of Stop loss.

It seems as though there is only one actual Stoploss and that is a 'Market' price order after price has been hit, unless there is enough volume to fill the original stop order price. This is why there is no guarantee on Stoploss fills.


I could be wrong,

DT

 

[Depth Trade]

What about volume to exit the position? It seems the confusion is whether one would be completely filled on a Stop 'loss' order or not.

If one had a stop that was hit, would one want to still be in position at a greater loss, because there wasn't the immediate volume on original price of Stop loss.

It seems as though there is only one actual Stoploss and that is a 'Market' price order after price has been hit, unless there is enough volume to fill the original stop order price. This is why there is no guarantee on Stoploss fills.


I could be wrong,

DT

This is why the phrase 'slippage' was introduced.


DT

 

[Rhody Trader]

What about volume to exit the position? It seems the confusion is whether one would be completely filled on a Stop 'loss' order or not

No confusion. When a stop order level is hit the order is executed at the market, whatever price that happens to be. If the order is too larger to be filled by the first available matching order, whatever is left will be match to the next one, and so on until the complete order is filled. As such, it may not be filled all in one place, which can indeed contribute to slippage.

The order will always get filled in total, though. Unless you are trading a ridiculously lightly traded market, your stop will never only be a partial fill.

 

[arabianights]

I wonder if these terms are not, in fact, defined anywhere, and differ between broker.

For me, and for other people I talk to, there isn't any reason a stop-loss can't be used to open a position.

Would you consider there to be any difference between a market-if-touched and a stop loss order? I wouldn't.

 

[Rhody Trader]

I wonder if these terms are not, in fact, defined anywhere, and differ between broker.

Brokers do vary in their use of terms, but it generally all boils down to semantical variations on the main three - market, limit, stop - with some additional ones related to time (market-on-close) and multiple orders (one-cancels-other).

For me, and for other people I talk to, there isn't any reason a stop-loss can't be used to open a position.

Now why would you use a stop loss order to enter a trade? Doesn't that sound contradictory? How can you stop a loss on a position that's not even open? That's why I've been saying it's all just a stop order with a little descriptive term added.

Would you consider there to be any difference between a market-if-touched and a stop loss order? I wouldn't.

Nope, none at all. Again, just semantics.

 

[arabianights]

Now why would you use a stop loss order to enter a trade? Doesn't that sound contradictory? How can you stop a loss on a position that's not even open? That's why I've been saying it's all just a stop order with a little descriptive term added.

For me, a stop order is an order that is triggered by the value of another trade. If you were suicidal enough you could start square, put stops in around the market price on, say, the NFP and let the market decide which way you should trade the figure.

The important thing about a stop-loss, in my opinion, is that it takes the market price, not that it is there to stop a loss. That describes the purpose of the order, not the nature of it.

 

[Rhody Trader]

For me, a stop order is an order that is triggered by the value of another trade.

What? The value of another trade? I'm not following you there.

The important thing about a stop-loss, in my opinion, is that it takes the market price, not that it is there to stop a loss. That describes the purpose of the order, not the nature of it.

You've basically just defined the difference between a stop order and a limit order.

 

[RichieE]

There seems to be some confusion here and even Investopedia has different definitions (listed below).

However, the following is from my notes when I joined the company I'm currently working in;

Stop Order: An order to sell at market which is triggered at a predetermined price.

Stop Limit Order: An order to sell at the predetermined price triggered at a predetermined price.

We were told to be very careful of requesting stop limit orders from the brokers. If the market 'gaps' downwards for any reason you may not be filled since it it possible that your sell order will just sit there waiting to be filled!

For example, the market is at 100 and you put in a stop limit order to sell at 90 while you're out to lunch. A disaster occurs and your market starts to fall heavily...

ASK = 100, 99, 99.... (MARKET GAPS DOWN 20 TICKS AND YOUR SELL ORDER IS TRIGGERED)... 79, 77, 75, 60, 55, 50.... (YOUR SELL ORDER CAN'T BE FILLED SINCE NO-ONE IS 90 OFFERED OR BETTER)... 45, 40, 35....

You come back from lunch and look at your screen... :-0

If you had a STOP order it would have been executed at market and you would be out of the position...

Stop-Limit Order
"An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better."

Stop Order
"An order to buy or sell a security when its price surpasses a particular point, thus ensuring a greater probability of achieving a predetermined entry or exit price, limiting the investor's loss or locking in his or her profit. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order."

 

[Rhody Trader]

We were told to be very careful of requesting stop limit orders from the brokers. If the market 'gaps' downwards for any reason you may not be filled since it it possible that your sell order will just sit there waiting to be filled!

Yeah, Stop Limit orders are generally better for getting into a position than getting out of them.