Thursday, April 18, 2013

Stop orders -- LimitOrder, StopLoss, TakeProfit ...

See posts on limit^stop orders...

To understand stop orders, it's instructional to contrast Limit orders vs Stop orders.

Your Limit B/S order gets executed when market moves ... in your favor.
Your Stop B/S order gets executed when market moves  ... against you, regardless whether you have an open position or not.
** Stop S is a Sell. You prepare a Stop S Below the mkt. It's executed when mkt moves Down, but before Down too much. (If you buy and then quickly Execute a Stop Sell, you end up buy-high-sell-low. This would be due to a miscalculated buy and you want to cut loss quickly.)
** Stop B is a Buy. You prepare a Stop B Above the mkt. It's executed when mkt moves Up, but before Up too much.


Stop orders are mostly used for SL. Other uses tend to be related to SL.

For example, after an FX trade at 1.22, you often prepare an offset trade SL and a similar offset trade TP. You prepare both but only one of them will get executed. SL and TP will box up your 1.22 "position open price", i.e. one of them placed at a higher and the other at a lower price around your position.

For a buy@1.22
* the StopLoss is a sell at Lower price -- at a Loss (buy high sell low)
* the TakeProfit is a sell at Higher price.

Now, the TP is just a regular limit order, while the SL is a stop order.

I think the exchange only knows LO and market orders. I think the exchange order book consists of LO only.

Here's a fundamental difference between LO and SO. When triggered, stop orders become a market order available for execution at the next available market price. Stop orders guarantee execution but do not guarantee a particular price. Therefore, stop orders may incur slippage -- There is a substantial risk that stop-loss orders left to protect open positions held overnight may be executed significantly worse than their specified price. I guess this would hapen when mkt moves against you too fast and too many like-minded investors have a SL order at the same price. Therefore, Saxo only told me SL order "usually" does limit the losses.

In contrast, LO is price-guaranteed by the exchange (though not sure about FX where there's no exchange).

No comments:

Total Pageviews

my favorite topics (labels)

_fuxi (302) _misLabel (13) _orig? (3) _rm (2) _vague (2) clarified (58) cpp (39) cpp_const (22) cpp_real (76) cpp/java/c# (101) cppBig4 (54) cppSmartPtr (35) cppSTL (33) cppSTL_itr (27) cppSTL_real (26) cppTemplate (28) creditMkt (14) db (65) db_sybase (43) deepUnder (31) dotnet (20) ECN (27) econ/bank` (36) fin/sys_misc (43) finGreek (34) finReal (45) finRisk (30) finTechDesign (46) finTechMisc (32) finVol (66) FixedIncom (28) fMath (7) fMathOption (33) fMathStoch (67) forex (39) gr8IV_Q (46) GTD_skill (15) GUI_event (30) inMemDB (42) intuit_math (41) intuitFinance (57) javaMisc (68) javaServerSide (13) lambda/delegate (22) marketData (28) math (10) mathStat (55) memIssue (8) memMgmt (66) metaProgram` (6) OO_Design (84) original_content (749) polymorphic/vptr (40) productive (21) ptr/ref (48) py (28) reflect (8) script`/unix (82) socket/stream (39) subquery/join (30) subvert (13) swing/wpf (9) sysProgram` (16) thread (164) thread_CAS (15) thread_cpp (28) Thread* (22) timeSaver (80) transactional (23) tune (24) tuneDB (40) tuneLatency (30) z_ajax (9) z_algoDataStruct (41) z_arch (26) z_arch_job (27) z_automateTest (17) z_autoTrad` (19) z_bestPractice (39) z_bold (83) z_bondMath (35) z_book (18) z_boost (19) z_byRef^Val (32) z_c#GUI (43) z_c#misc (80) z_cast/convert (28) z_container (67) z_cStr/arr (39) z_Favorite* (8) z_FIX (15) z_forex (48) z_fwd_Deal (18) z_gz=job (33) z_gzBig20 (13) z_gzMgr (13) z_gzPain (20) z_gzThreat (19) z_hib (19) z_IDE (52) z_ikm (5) z_IR_misc (36) z_IRS (26) z_javaWeb (28) z_jdbc (10) z_jobFinTech (46) z_jobHunt (20) z_jobRealXp (10) z_jobStrength (15) z_jobUS^asia (27) z_letter (42) z_linq (10) z_memberHid` (11) z_MOM (54) z_nestedClass (5) z_oq (24) z_PCP (12) z_pearl (1) z_php (20) z_prodSupport (7) z_py (31) z_quant (14) z_regex (8) z_rv (38) z_skillist (48) z_slic`Problem (6) z_SOA (14) z_spring (25) z_src_code (8) z_swingMisc (50) z_swingTable (26) z_unpublish (2) z_VBA/Excel (8) z_windoz (17) z_wpfCommand (9)

About Me

New York (Time Square), NY, United States
http://www.linkedin.com/in/tanbin