Stop loss question (again)

Hi guys,

I have a question regarding stop loss orders.

This comes about because I made a mistake when setting one previously.

I'm not sure if the same options are available with other brokers, but with Westpac Broking, I don't have the ability to place a market order triggered by a stop loss, only a limit order...

The mistake I made was to set the trigger price and limited order price to the same value. In practise, what happened was that FMG was trading at around 8.25, my stop loss trigger was set at 8.15 and my limit price was unfortunately also 8.15. For some yet-to-be-explained-to-me reason, it shot down from 8.25 to 7.50 in the space of 5 minutes, completely skipping my stop loss. However, I didn't realise initially that it had been skipped and when I saw it rising back above 7.50 it made a good opportunity to buy back in, but I then found that I didn't have the funds available to do so without the sale. Anyway, as I said, my mistake - albeit a frustrating one! :banghead:

What I want to do is learn from it... Given that a sell limit order executes at the given price or lower, does it mean that there are no significant downsides (other than potential slippage I suppose) to setting that limit order price significantly below the trigger? That way, as I understand it, it will be guaranteed to be executed? Therefore, is there actually a real-world difference between a limit order, placed significantly below the current price, and a market order? Am I missing something?

And as an aside, does anyone know exactly how long in real terms it takes a stop loss trigger to place a market order? Is it in the region of milliseconds or more like a couple of seconds? I suppose I'm asking in the context of Westpac Broking, as I know it could vary from broker to broker, but what should the expectation be?

yeh interesting question, im curious to know how there executed through commsec and if theirs a fee involved in placing them?

yeh interesting question, im curious to know how there executed through commsec and if theirs a fee involved in placing them?

There is with Westpac... an extra $10 or so for conditional orders.. a rip off if you ask me.

I'm definitely interested in moving across to Interactive Brokers because of their much lower commissions, but as far as I can tell (and from doing a search on the forums here), theres no way to transfer your portfolio across from a CHESS account? Does anyone know if this the case still? Is the only way to do it to sell all your shares with your current broker, wait for settlement, transfer the money to IB, wait for it to clear, THEN re-buy your portfolio and hope that the market has dropped in your favour in the mean time!?! ;)

There is with Westpac... an extra $10 or so for conditional orders.. a rip off if you ask me.

I'm definitely interested in moving across to Interactive Brokers because of their much lower commissions, but as far as I can tell (and from doing a search on the forums here), theres no way to transfer your portfolio across from a CHESS account? Does anyone know if this the case still? Is the only way to do it to sell all your shares with your current broker, wait for settlement, transfer the money to IB, wait for it to clear, THEN re-buy your portfolio and hope that the market has dropped in your favour in the mean time!?! ;)

yeh im also thinking about doing this, surely you can jsut transfer it over???

so its $10 to set the stop loss, what happens if you keep moving your stop loss price does that mean more $10 fees, or is it jsut $10 flat as soon as its executed plus normal brokerage...

i was thinking bout transferring my bank account to cba so i could get lower brokerage with commsec...maby i should look at a cheaper broker... is IB any good?

yeh im also thinking about doing this, surely you can jsut transfer it over???

so its $10 to set the stop loss, what happens if you keep moving your stop loss price does that mean more $10 fees, or is it jsut $10 flat as soon as its executed plus normal brokerage...

i was thinking bout transferring my bank account to cba so i could get lower brokerage with commsec...maby i should look at a cheaper broker... is IB any good?

Its only $10 when it is executed... It doesn't cost you to set it 'just in case'. Worth using, but still a rip off.

I've heard good things about IB, but can't speak first hand. I've actually got the IB account now and I have about 30 days left to transfer funds in before they close it. I've been thinking about the best way to do so but I as far as I can see, as I described above is the only way. Bit frustrating. And particularly so if you didn't want to cash in your gains this financial year. But then again, what gains? :confused: ;)

The mistake I made was to set the trigger price and limited order price to the same value. In practise, what happened was that FMG was trading at around 8.25, my stop loss trigger was set at 8.15 and my limit price was unfortunately also 8.15. For some yet-to-be-explained-to-me reason, it shot down from 8.25 to 7.50 in the space of 5 minutes, completely skipping my stop loss. However, I didn't realise initially that it had been skipped and when I saw it rising back above 7.50 it made a good opportunity to buy back in, but I then found that I didn't have the funds available to do so without the sale. Anyway, as I said, my mistake - albeit a frustrating one!

Firstly the spike down was more than likely caused by stops being triggered.
Lets say in the background 100 people have their stop set at a logical (technically---often a support level) and in this case $8.25.
Trading falls to $8.25 --- all of a sudden 100 sell orders come at $8.25---it takes all buyers to $7.50. The quick return to a more realistic price gives it away in my view.

Limit orders
Placing a buy limit at $8.15 mean you wont be filled until it trades below that figure and can pick you up on the way up again.

I use stop limits with IB.
Sometimes in a retracement lik yours.

Stops would be set below your order limit.

Its only $10 when it is executed... It doesn't cost you to set it 'just in case'. Worth using, but still a rip off.

I've heard good things about IB, but can't speak first hand. I've actually got the IB account now and I have about 30 days left to transfer funds in before they close it. I've been thinking about the best way to do so but I as far as I can see, as I described above is the only way. Bit frustrating. And particularly so if you didn't want to cash in your gains this financial year. But then again, what gains? :confused: ;)

thats true ...what gains... but im holding 2 or 3 stocks that i consider long term holds.... i dont exactly wanna sell them off at a loss just to transfer to IB... is there any issues with having 2 accounts if i cant transfer all my holdings over to IB? is there a stop loss fee with IB?

i just dont wanna go through the pain of changing bank accounts and re-directing all my bills/work details etc to a new account just so i can get a cheaper brokerage rate.

commsec charge $14.95 for a condit order if triggerred or 9.95 up front, if u want.

another complication i found, is that u cant set the limit and trigger anywhere u want.

it has to be within a certain range.

i have had to fiddle, cause my limit would not accept.

when i rang commsec and said "what is the mathematical ratio, between trigger and limit, so i dont have to muck about"

they said "that info is set by ASX and is not disclosed" !!??

example ( not exact) sell trigger on GPT $1.65...limit $1.50..wont accept
$1.51 still no...$1.52..order accepts.

i find this a little peculiar, and frustrating.

as i am still a newbie, maybe i am still misunderstanding something.
but it definately wont accept those orders if the range is not within certain bounds

what i wanted was something like " your limit must be within 8% to 15% of yr trigger price ( for example)

any comments?

tony

is slippage an issue if your trigger and limit price is the same, if your only trading at lowish levels?

Please exscuse my ignorance;

But if you had a trigger at say $1.50 why would you set a limit price?

To me, if my stop loss was triggered, I would want to close that position straight away.

Isn't that the reason for setting a stop loss? To close out if that position is reached?

Why would it be worth risking more losses for perhaps the sake of a few cents?

slippage is ALWAYS an issue.

if u r trading very liquid stocks, it might be only 1 or 2 ticks, under normal market conditions.

if the market slides badly, it will be bigger.

if u trade illiquid stocks, slippage can be heartbreaking, if u sell on a downturn, no matter whether u place yr order "at market" , or conditional.

has happened to me, 10 cent+ slippage on a $1 stock!! (MSB)

recently saw BOC, which is an ASX top 300 company with a 20c buy/sell spread, at an SP of about $1, so slip that one into ya!

if yr trigger and limit r too close, u face the very real possibility that u will be gapped completely and yr order will not trigger.

all this (and more) happens on big falls or volatility.

that is probably why many of the serious guys on
this forum only trade very liquid stocks or markets.

makes me laugh when i see paper traders say how well they do.

i always ask how much slippage they allow for.

most say none!!!

they are usually paper trading whatever stock looks good on their scans as well...ie plenty of spec stocks.

somethings u find out the hard way

slippage is ALWAYS an issue.

if u r trading very liquid stocks, it might be only 1 or 2 ticks, under normal market conditions.

if the market slides badly, it will be bigger.

if u trade illiquid stocks, slippage can be heartbreaking, if u sell on a downturn, no matter whether u place yr order "at market" , or conditional.

has happened to me, 10 cent+ slippage on a $1 stock!! (MSB)

recently saw BOC, which is an ASX top 300 company with a 20c buy/sell spread, at an SP of about $1, so slip that one into ya!

if yr trigger and limit r too close, u face the very real possibility that u will be gapped completely and yr order will not trigger.

all this (and more) happens on big falls or volatility.

that is probably why many of the serious guys on
this forum only trade very liquid stocks or markets.

makes me laugh when i see paper traders say how well they do.

i always ask how much slippage they allow for.

most say none!!!

they are usually paper trading whatever stock looks good on their scans as well...ie plenty of spec stocks.

somethings u find out the hard way

thanks for the info, good to know....

btw i jsut called my mate that works at commsec, he does tranfers from brokerage to brokerage....he said you dont have to sell out they jsut tranfer it over with your HIN number supposedly with no cost...

I'm definitely interested in moving across to Interactive Brokers because of their much lower commissions, but as far as I can tell (and from doing a search on the forums here), theres no way to transfer your portfolio across from a CHESS account? Does anyone know if this the case still? Is the only way to do it to sell all your shares with your current broker, wait for settlement, transfer the money to IB, wait for it to clear, THEN re-buy your portfolio and hope that the market has dropped in your favour in the mean time!?! ;)
Not true; you can transfer your shares to IB without having to sell. The info is on the IB website and also on this forum. I transferred some of my portfolio from Etrade to IB about 10 months ago. Just make sure you follow up by phone after a couple of days with both IB and the originating broker to ensure evrything is in order and it is processed. Took about a week to transfer the shares.

There is with Westpac... an extra $10 or so for conditional orders.. a rip off if you ask me.

I'm definitely interested in moving across to Interactive Brokers because of their much lower commissions, but as far as I can tell (and from doing a search on the forums here), theres no way to transfer your portfolio across from a CHESS account? Does anyone know if this the case still? Is the only way to do it to sell all your shares with your current broker, wait for settlement, transfer the money to IB, wait for it to clear, THEN re-buy your portfolio and hope that the market has dropped in your favour in the mean time!?! ;)


I'm with MQ Prime and they don't charge for general stop loss orders, but they do charge for guaranteed stop loss orders, which means you will be stopped out at your exact price. I don't see the issue with normal stop loss orders, if you are trading in a liquid share, in small-ish quantities. A few cents difference in this case isn't going to make much difference.

They've just introduced a new charting facility, which looks pretty good.

I don't know about IB, i haven't used them yet. A bit skeptical about going American, as i like telephone service. I find the traditional brokers like Etrade and Commsec a bit basic.

I'm not sure about moving your shares across to IB either. If you aren't trading that often, is it really worth it? The occassional $20ish commission isn't going to kill you is it?!

Please exscuse my ignorance;

But if you had a trigger at say $1.50 why would you set a limit price?

To me, if my stop loss was triggered, I would want to close that position straight away.

Isn't that the reason for setting a stop loss? To close out if that position is reached?

Why would it be worth risking more losses for perhaps the sake of a few cents?

Razza, with a Stop Loss order, your stop price and your limit are the same. If your stop is 1.5 then you order will get triggered at 1.5 (in theory) and an attempt will be made to fill the order at that price should there be a trader(s) on the other side at that price.

A Stop Limit order on the other hand will first be triggered by the Stop, then filled within the limit. If the Stop is 1.5 and the limit 1.6 on a long trade, then it should be filled between 1.5 and 1.6.
I hope this helps.

Cheers,


CanOz

Razza, with a Stop Loss order, your stop price and your limit are the same. If your stop is 1.5 then you order will get triggered at 1.5 (in theory) and an attempt will be made to fill the order at that price should there be a trader(s) on the other side at that price.

A Stop Limit order on the other hand will first be triggered by the Stop, then filled within the limit. If the Stop is 1.5 and the limit 1.6 on a long trade, then it should be filled between 1.5 and 1.6.
I hope this helps.

Cheers,


CanOz

I'm still a bit confused with the exact terminology. On the Westpac Broking site, there is only a stop loss order, but you need to set both the trigger and the actual price you want to sell AT. If you set both at 1.5, for example, and the stock plummets, your trigger might actually occur as it skips straight from 1.6 to 1.4, by which time your sell price is ABOVE the current market price, and your sell is not filled.

Therefore, if as you say, a stop loss should attempt to sell AT the trigger price, then it cannot be guaranteed to sell. Only a market order is guaranteed, but the price may have dropped further, or there may only be a small number of buyers and the price may drop further to complete your fill...

My question is, can a stop loss trigger a market order - not just a limit order - and if so, why does it seem that Westpac doesn't offer it?

your trigger might actually occur as it skips straight from 1.6 to 1.4, by which time your sell price is ABOVE the current market price, and your sell is not filled.

Therefore, if as you say, a stop loss should attempt to sell AT the trigger price, then it cannot be guaranteed to sell. Only a market order is guaranteed, but the price may have dropped further, or there may only be a small number of buyers and the price may drop further to complete your fill...

My question is, can a stop loss trigger a market order - not just a limit order - and if so, why does it seem that Westpac doesn't offer it?

Why would you want to set your stop-loss at the same price as your sell order?

There are other brokers who offer GSLs, but imo (and somebody correct me if i'm wrong), i dont think they're worth it if you're dealing in small quantities. For example, the slippage you may experience using a stop loss is probably going to be less than the cost of an actual GSL, as the GSL costs a % of your transaction plus a fee for each share.

Why would you want to set your stop-loss at the same price as your sell order?

There are other brokers who offer GSLs, but imo (and somebody correct me if i'm wrong), i dont think they're worth it if you're dealing in small quantities. For example, the slippage you may experience using a stop loss is probably going to be less than the cost of an actual GSL, as the GSL costs a % of your transaction plus a fee for each share.

I think we might have crossed wires here. I'm not sure what you're asking me. Basically what I want is to sell at the highest price possible once the stop loss is triggered.

Eg, if I set my stop loss trigger at 1.5 and the stock is trading at 1.6 but then drops to 1.2, I want the stop loss to sell as close to 1.5 as I can, obviously. If I don't get exactly 1.5, fine, but I don't want my trade to be skipped without being executed if the price tumbles below my stop loss price.

I made no mention of GSLs though so I'm confused by what you meant. The major issue I faced in the original post of this thread was that my stop loss sell order was completely skipped because by the time my stop loss triggered, the price had gone lower than the limit order I had set.

With my Westpac Broking account, I don't seem to have the option to have the stop loss trigger a market order to sell - only a limit order.

Therefore I asked the question of whether it is best to set the limit price to be significantly lower than the trigger price, because then I would be essentially guaranteed a fill, although potentially slippage would occur. And then I asked the question of whether a limit order to sell significantly below the trading price ends up being the same thing as a market order, since the limit order would essentially be filled by any buy orders outstanding. As I understand it, this is exactly what a market order is?

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.

You must take responsibility and find the broker that covers you need and not put up with crap.

IB I think are really the only broker to offer any meaning full range of order types and not charge for them, plus cheaper brokerage on the whole and if trading US stocks then its 10X better. But its is for professional traders.

http://www.interactivebrokers.com/en/p.php?f=orderTypes&ib_entity=llc

A couple of examples for you

To enter long

BUY STOP LIMIT - Buy a security at a specific price or better (the Stop Limit price) but only after a given Stop price has been reached or passed. To enter a Buy Stop Limit Order, you must enter a price above the current ask price and the limit price must be above or equal to the stop price. If the price moves to or above the Stop price, a Limit Order to Buy the security at the Limit price will be entered. You do this for a stock which you want to buy only if it has broken out of a trading range. So you might put the Buy Stop a little ways above resistence and the purpose of the stop is so that you do not pay more than the stop, in case it exploded upwardss.

Stoploss

SELL STOP An order to Sell at the market price once the security has traded at or through a certain price (the Stop price). Sell Stops are entered below the current Market price. If the price moves to or below your Stop price, your Stop Order becomes a Market Order and your broker will sell at the current market price. A Sell Stop is designed to protect a profit or limit a loss on a security held in a long position.

To enter short

SELL STOP LIMIT Order - to Sell a security at a specific price or better (the Stop Limit price) but only after a given Stop price has been reached or passed. To enter a Sell Stop Limit Order, you must enter a price below the current Bid price and the Limit price must be less than or equal to the Stop price. If the security drops to or below the Stop price, a Limit Order for the security at the Limit price will be entered. When the Stop price is reached a sell order is put into effect, but the limit insures that it will not be sold for les than the limit price. Gets you out of a stock, but only in an orderly decline. It will not sell your stock if it drops below the limit price. It gives you a selling range.

Nice job Focus, couldn't have explained it better.

Thanks,


CanOz

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?

Nobody? Frustrating when a bustling thread suddenly falls silent :sly:

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.

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.

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. ;)

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...

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.