Stop loss question (again)

[diliff]

Guys you need to google order types and research what order types are and what they do then find out what's available for the ASX, it changes from exchange to exchange.

Then work out what order types your broker provide. Here in Oz they will be woeful and have the hide in some case's to charge for them. Also beware what are called stop orders are really contingent orders DYOR on how the order types work and do they suit you needs.

Is that strictly correct though? As I understand it, there are really just two basic types of orders: Limit and market. Again, as I understand it, a stop loss is essentially one of those two market orders which is only submitted to the exchange when a certain price is triggered but to all intents and purposes appears identical to the market as a normal limit or market order as the trigger for the order occurs within the broker, not on the exchange.

I see from the url you provided that IB considers a stop loss order to be a market order:

A Stop order becomes a market order to buy or sell securities or commodities once the specified stop price is attained or penetrated. A Stop order is not guaranteed a specific execution price.

This is what I expected Westpac Broking to provide, but it appears from their conditional order screen that it is actually a limit order, since you provide both the trigger price AND the sell price (although it doesn't say it is a limit order, I'm using logic since a market order wouldn't require a sell price in addition to a trgger price)

This is probably part of the cause of the confusion since the terminology isn't necessarily consistent.

And for all the discussion here, I don't think anyone has actually properly addressed my original question, which is:

Given Westpac's stop loss order actually triggers a limit order rather than a market order, is the only real strategy available to simply place the limit price far below your stop, otherwise you run the risk of the market price plunging below your limit price before the broker has a chance to place the order on the exchange?

 

[diliff]

Nobody? Frustrating when a bustling thread suddenly falls silent

 

[cuttlefish]

Given Westpac's stop loss order actually triggers a limit order rather than a market order, is the only real strategy available to simply place the limit price far below your stop, otherwise you run the risk of the market price plunging below your limit price before the broker has a chance to place the order on the exchange?

dillif - yes thats right - though I suspect that there will be a limit on how low the Westpac platform will let you set the limit below the stop price - but if you want it to act like a market order then yes set the limit as low as possible but as you've pointed out thats still no guarantee that it will get filled.

 

[cuttlefish]

Just to add a bit - if dealing with low liquidity stocks that have wide or irregular spreads this approach can catch you out - particularly if the size of your order is a little larger than the typical buy side. I've stopped using conditional orders because they often get triggered intraday by silly little orders and also you can't control how the stock is fed out so often you get filled at a lower price than if you'd been able to feed the stock out manually.

But that doesn't mean they aren't a good idea - it would be nice if you could set a volume parameter (i.e. only trigger this if more than xxx shares have traded below $y.) so they don't get triggered by a $100 order.

 

[diliff]

Just to add a bit - if dealing with low liquidity stocks that have wide or irregular spreads this approach can catch you out - particularly if the size of your order is a little larger than the typical buy side. I've stopped using conditional orders because they often get triggered intraday by silly little orders and also you can't control how the stock is fed out so often you get filled at a lower price than if you'd been able to feed the stock out manually.

But that doesn't mean they aren't a good idea - it would be nice if you could set a volume parameter (i.e. only trigger this if more than xxx shares have traded below $y.) so they don't get triggered by a $100 order.

Thanks, that was exactly the sort of answer, or second opinion really, that I was after all along.

I agree with you. Seems as though most of the brokers just don't give you the flexibility you need with conditional orders. The only way to be completely comfortable with your open trades is simply to monitor them intensely with your trigger finger at the ready.

 

[white_goodman]

Thanks, that was exactly the sort of answer, or second opinion really, that I was after all along.

I agree with you. Seems as though most of the brokers just don't give you the flexibility you need with conditional orders. The only way to be completely comfortable with your open trades is simply to monitor them intensely with your trigger finger at the ready.

thats why i try to limit myself to being in a maximum of 4 or 5 stocks at a time, saves time monitoring them all...

 

[Paladin]

But that doesn't mean they aren't a good idea - it would be nice if you could set a volume parameter (i.e. only trigger this if more than xxx shares have traded below $y.) so they don't get triggered by a $100 order.

Just as an aside, but Etrade allow this. I've never placed a stop without a volume stipulation for precisely the reason outlined. Is this not default practice for Comsec, etc?

I try to set volume at about 10% over an average day (I work out the 'average' visually I should add, not with a calculator or anything) - purely because it seems that when there is a downward run volume will exceed this and the +10% should get me out before close if there's a genuine correction in play. That's my own little rule of thumb from my limited experience. It doesn't protect against a slow fade, but I'm using stops more as a way of trying to jump out at the top of a downward run. If the SP is in a fade, then that may or may not be a problem. It's more the runs I worry about.