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Limit vs Stop Orders

  • #21
  • May 20, 2008 11:04pm May 20, 2008 11:04pm
Quoting bundyraider
Is/was that true?? ...wow. That's amazingly restrictive.

So in a fast moving market you're saying you have to cross you fingers that the spread doesn't widen at the moment you place your (forced to use) "buy at market" order?? ...

On the ASX I'm sure you can place Limit orders over the offer. It's been a while since I bought or sold shares directly, though I'm 99% sure.

If Amazon is $81 and I want to buy right now, I'd much rather place a limit order at $82 than a Buy @ Market . Any higher and it's not worth my interest. Buy - Limit @ $82.
It was always a stupid rule, and the NYSE even knows it's a stupid rule because they came up with a totally different order type called "Or Better" which CAN be placed on the wrong side. Now in reality, an "Or Better" order on the NYSE is just the same thing as a limit order, but it just has a different name. That's regulators for you...the original regulation was flawed, so instead of removing it they created a second regulation, thus confusing generations of Series-7 students.
  • #22
  • May 20, 2008 11:08pm May 20, 2008 11:08pm
Answer: D

?

  • #23
  • May 20, 2008 11:10pm May 20, 2008 11:10pm
H. Stay glued to the screen and place a limit order when the condition is met.

....or Stop - Limit @ 94.50

That get's down to what Merlin is pointing at though. A Stop - Limit is just a conditional/automated instruction to Place a Limit Order after a certain level is reached.
Bundy's status today: "Waiting..."
  • #24
  • May 20, 2008 11:11pm May 20, 2008 11:11pm
Quoting bundyraider
Is/was that true?? ...wow. That's amazingly restrictive.

So in a fast moving market you're saying you have to cross you fingers that the spread doesn't widen at the moment you place your (forced to use) "buy at market" order?? ...

On the ASX I'm sure you can place Limit orders over the offer. It's been a while since I bought or sold shares directly, though I'm 99% sure.

If Amazon is $81 and I want to buy right now, I'd much rather place a limit order at $82 than a Buy @ Market . Any higher and it's not worth my interest. Buy - Limit @ $82.
To be fair to the NYSE a little though, there aren't very many "fast moving" stocks there. The NYSE has all the one to three letter symbols, meaning the oldest, most established, stable, stodgiest stocks. So it wasn't a big issue. Put in a market order for IBM when it's at 81 and you'll get 81 or maybe 81.03 or something.
  • #25
  • May 20, 2008 11:12pm May 20, 2008 11:12pm
Quoting benssol
Answer: D

?


Half credit.
  • #26
  • May 20, 2008 11:13pm May 20, 2008 11:13pm
Quoting capitalist88
It was always a stupid rule, and the NYSE even knows it's a stupid rule because they came up with a totally different order type called "Or Better" which CAN be placed on the wrong side. Now in reality, an "Or Better" order on the NYSE is just the same thing as a limit order, but it just has a different name. That's regulators for you...the original regulation was flawed, so instead of removing it they created a second regulation, thus confusing generations of Series-7 students.
The same entity that stubbornly kept the up-tick rule for so long.
Bundy's status today: "Waiting..."
  • #27
  • May 20, 2008 11:15pm May 20, 2008 11:15pm
Quoting bundyraider
H. Stay glued to the screen and place a limit order when the condition is met.

....or Stop - Limit @ 94.50

That get's down to what Merlin is pointing at though. A Stop - Limit is just a conditional/automated instruction to Place a Limit Order after a certain level is reached.

The customer is now yelling their head off at you. Here's why.

They specified that if IBM reached 94.5 that they wanted to BE SURE OF A FILL. Remember that a stop-limit, when triggered would turn into a limit order. So when the price reached the trigger of 94.50, the order turned into a limit order to buy at 94.50. This means that we are NOT allowed to buy at any price higher than that.

So now what happens if the next tic is 94.51? The order won't fill. Price is too high. Next the price goes to 94.75. Then 95. Then 98. Then 134!!!!!! LOL. Boy is this customer pissed that you told him to place a stop-limit order. He's watching a great missed opportunity pass him by while he's sitting on the sidelines.
  • #28
  • May 20, 2008 11:16pm May 20, 2008 11:16pm
Quoting capitalist88
Half credit.
I know you wanted F. but you complicated the answers on purpose didn't you?
Bundy's status today: "Waiting..."
  • #29
  • May 20, 2008 11:17pm May 20, 2008 11:17pm
Quoting bundyraider
The same entity that stubbornly kept the up-tick rule for so long.
See, I don't even keep up. The uptick rule is gone? Cool.
  • #30
  • May 20, 2008 11:20pm May 20, 2008 11:20pm
Quoting capitalist88
The customer is now yelling their head off at you. Here's why.
Actually, I was referring to my wanting to have a limit if it was my own order. lol

As a broker acting on someones behalf , of course I'd go with D. (or F. lol)
Bundy's status today: "Waiting..."
  • #31
  • May 20, 2008 11:20pm May 20, 2008 11:20pm
Quoting capitalist88
Half credit.
whaat


by the way, my buy stop now activated in GBPCHF
  • #32
  • May 20, 2008 11:23pm May 20, 2008 11:23pm
Quoting capitalist88
See, I don't even keep up. The uptick rule is gone? Cool.
Obviously I don't trade NYSE, but I'm sure sure it was removed not long back.
Bundy's status today: "Waiting..."
  • #33
  • May 20, 2008 11:27pm May 20, 2008 11:27pm
Quoting bundyraider
I know you wanted F. but you complicated the answers on purpose didn't you?

LOL, yes it's F. But I put "C" in there to illustrate that neither a market order nor a limit order would work in that situation. So those can't be the only fundamental order types.

Remember the most basic conceptual difference between stops and limits is that stop orders are trend following orders and limit orders are contrarian type orders, just as Syafi meant in the original post.

Here's yet another way to illustrate the difference (same concept, different illustration of it).

Suppose IBM is at 90, and that there are a bunch of limit orders to buy at 88. There are also a bunch of limit orders to sell at 92. What will happen if IBM goes down to 88? It will hit a bunch of buy orders and turn back up. If IBM goes up to 92, it will hit a bunch of sell orders and turn back down. So LIMIT orders tend to create support and resistance levels. They turn the price back the other way...away from its trend.

Now consider the exact same situation, IBM at 90. But this time there is a cluster of STOP orders to buy at 92 (breakout players). There are also a bunch of STOP orders to sell at 88 (people put their stop losses there for instance). Now what will happen if IBM goes down to 88? All the sell stops will be triggered and there will be even more selling pressure, driving the price even lower. If IBM goes up to 92 instead, the buy stops will be hit driving the price even higher. So STOP orders tend to create even more momentum. They tend to keep the trend going in its original direction.

Again, these two order types are the exact opposites of each other.
  • #34
  • May 20, 2008 11:31pm May 20, 2008 11:31pm
Quoting benssol
whaat


by the way, my buy stop now activated in GBPCHF

LOL, F doggone it. F includes C which includes my dig on the bearded one!
  • #35
  • May 20, 2008 11:37pm May 20, 2008 11:37pm
Quoting capitalist88
LOL, F doggone it. F includes C which includes my dig on the bearded one!
yes I read your previous post

you know how to discuss what you want to say in plain English

thanks for the discussion

now say this to Merlin

  • #36
  • May 20, 2008 11:37pm May 20, 2008 11:37pm
Quoting benssol
whaat


by the way, my buy stop now activated in GBPCHF
Hmmm, let's see.

SL o BS
BL e SS

So... Buy stops are above the market. So without even looking at a chart, I can assume that GBP/CHF is moving up right now?
  • #37
  • May 20, 2008 11:39pm May 20, 2008 11:39pm
Quoting capitalist88
Hmmm, let's see.

SL o BS
BL e SS

So... Buy stops are above the market. So without even looking at a chart, I can assume that GBP/CHF is moving up right now?
yes it was until you said this
  • #38
  • May 20, 2008 11:40pm May 20, 2008 11:40pm
I completely understand the need to have these different order types defined, and supported officially. For legal reasons, there needs to be a clear understanding of what terminology should be used between broker and client.

You're going to have a hard time arguing against the magic man though. ...he's right too. Those other defined order types are still just conditional derivatives of the basic "at market" or "Limit" order types.

You both win.

And for you...
The Uptick Rule: Nice Knowing You

.
Bundy's status today: "Waiting..."
  • #39
  • May 20, 2008 11:41pm May 20, 2008 11:41pm
Quoting benssol
yes it was until you said this

Sorry dude!!! I hate when I accidentally move the market.
  • #40
  • May 20, 2008 11:47pm May 20, 2008 11:47pm
Quoting bundyraider
I completely understand the need to have these different order types defined, and supported officially. For legal reasons, there needs to be a clear understanding of what terminology should be used between broker and client.

You're going to have a hard time arguing against the magic man though. ...he's right too. Those other defined order types are still just conditional derivatives of the basic "at market" or "Limit" order types.

You both win.

And for you...
The Uptick Rule: Nice Knowing You

.

He IS right. But we're both using the exact same definitions of the order types. So we agree on that. Where I think The Great Fuzzy Faced One and I don't see eye to eye is on how to "classify" the order types.

He sees market and limit to be fundamental, probably because the idea of an immediate sure fill at an uncertain price (market order) vs. a later possible fill at a price certain (limit order) is an important distinction for him.

To me the important distinction is the intent of the trader (bandwagon buying vs. bargain hunting; profit taking vs. panic selling), the actual effect of placing the orders (stop orders will fill immediately in situations where limit orders won't and vice-versa), and the effect on the market dynamic (creation of support/resistance vs. creation of more momentum in the same direction).

You can look at it both ways, depending on what you think is the more important distinction.
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