Stop order as market limit

[GordonDK 6]

Hi all,

 

I’ve started using hard stop market orders for trading. Is it possible to create a stop order as a ‘market limit’ order, e.g. stop at x.x USD - 10 cents? Would be nice to protect against sudden extreme slippage. Anyone?

 

 

 

Br.,

 

 

 

Jimmy

[GordonDK 6]

x.x would be the average cost of stock (at purchase, i.e. long in this case).

[Robert H 453]

Jimmy, I believe you're looking for a Stop Limit Order. Please see

.

 

A Stop Limit order becomes a limit order once the trigger price is hit. The limit order is then filled at the specified limit price or better. This is useful for when prices are moving very fast with momentum. Using a Stop Market order may cause you to be filled at a price much lower than the Trigger Price. Conversely, a Stop Limit order is not guaranteed to be filled if the price drops quickly below your limit price. This may leave you stuck in the position.

For example, I am long 100 shares of FB with an average cost of $160. The current price is $166. I want to protect my profit and exit if the price falls below $163. However, I am only willing to exit if I am filled at $162.75 or better. Once FB reaches $163, a sell limit order will be sent to exit the position at $162.75 or higher.

 

This script can be used in a hotkey or Montage hot button:

Share=Pos;ROUTE=STOP;StopType=Limit;StopPrice=AvgCost-0.10;StopPrice=Round2; Price=StopPrice-0.01;TIF=DAY+;SELL=Send

 

The order will only fill if the price is 0.01 below your stop price. If the price moved so fast that you were unable to get filled at 0.11 below average cost, it won't get filled. Note that 0.10 is a rather tight stop for most stocks.

[GordonDK 6]

I’m not looking for a stop limit order for the exact reason that you are describing. Anyone else?

[Robert H 453]

Can you provide a clear example of the scenario you are trying to protect against?

[GordonDK 6]

A sudden spike in price below the stop order. Since it is a stop market order the loss could be significant if the sudden price spike means a brief momentaneous drop of say 1 USD. I believe Andrew has mentioned this as the reason why he is not using hard stops for trading?

[Robert H 453]

Thanks, Jimmy.

 

The only guaranteed way to not get shaken out by sudden spikes/drops is to not use a hard stop; this is why Andrew and others use a mental stop loss. For highly liquid stocks, it is very rare that the price drops suddenly for no reason. And if they do, there should be enough volume for your limit price to be filled on the way down.

 

The second best way is to use the Stop Limit Order I described above. It ensures that you are only stopped out if you are filled at a certain price below the stop price (i.,e a penny or nickel). It is a threshold you are defining by saying "if the price hits A, get me out only if the price is B or better. Don't just sell at the market price."

 

For example, you buy a stock at $10. You send a Stop Limit Order with Trigger Price at $9.90 and Price of $9.85. If the price momentarily drops $1 on some sort of fat-finger order, you will only stop out if you were able to get filled at $9.85. It could be the case that other traders got filled with Stop Market orders, and your $9.85 threshold wasn't met on the sudden decline. If the price suddenly comes back to $10 (again, it has to happen so quick/violently that your $9.85 is skipped), you are still in the position. If the drop was real and price continues declining, unfortunately you are still in the position.

 

Now this is a double edged sword because depending on the time/sales, order flow, L2, other market participants, etc. you may actually end up getting filled at 9.85 on the $1 drop. If the price recovers to $10, you're no longer in the position. However, if the price continues to decline, you have averted disaster.

 

There is just no way to determine whether the momentary spike is a real drop, or some sort of shake out. It also highly depends on what other limit orders are out there and the sequence of fills in the time/sales. Therefore, there is no order type that can predict the future.

 

I know that mitigate doesn't your scenario entirely, but this is just the way market works and how uncertain it can be. I'd be interested in hearing others' opinion on this matter.

[GordonDK 6]

Yes, but it annoys me that you are not able to set a hard stop marketable limit order at e.g. 10 c below the stop price where you want to exit for a long trade, as you do with a mental stop loss order (i.e. when you press the predefined hotkey to cover). I don’t think it’s possible in DAS, but it really should be an option.

[Robert H 453]

If your goal is for DAS to automatically send a marketable limit order--in the same way that Andrew would press his hotkey when the price reaches a certain level--create a hotkey or hot button with this script:

 

Share=Pos;ROUTE=STOP;StopType=Limit;StopPrice=AvgCost-0.10;StopPrice=Round2; Price=Bid-.05;TIF=DAY+;SELL=Send

 

That is equivalent to you pressing the 'SELL ALL AT BID - 0.05' hotkey when the market price goes 0.10 below your average.

 

I know I'm starting to sound like a broken record, but you may or may not get filled at a favourable price depending on the price action. This is true for both the stop limit order (above) and a manual press of the hotkey.

[GordonDK 6]

Thanks Robert, I'll try this out in the sim on Monday after I'm done with my real trading session.