Buy stop, Sell stop?

Hi,

I have a very basic question here but I hope someone will answer it for me.

If I place a buy stop at 1.9563 and I have a 3 pip spread, does the trade trigger at 1.9563 or does it trigger at 1.9560 or 1.9566 to allow for the spread.

Conversly, if I place a sell stop at 1.9543 and I have a 3 pip spread, does the trade trigger at 1.9543 or does it trigger at 1.9540 or 1.9546 to allow for the spread.

I would have thought that the trade would trigger on the nominated amount (1.9563 for the long trade and 1.9543 for the short trade) and the account would start at -3 pips.

I am asking this as I happened to be at the pc when a long was triggered and it seemed to trigger before it reached my line. If I was placing a buy stop 10 pips on the other side of a resistence and it was a pair with a 10 pip spread, I wouldn't be too happy if the trade triggered on the resisitence only to have the price bounce instead of breaking through.

Thanks for any replies

Mike

You will always buy at the ask and sell at the bid with almost any forex dealer. So if the price is 1.3150/52 you will buy at 52 and sell at 50. The price you're looking at could be either the bid or the ask. You would usually be looking at the bid. That's why, when you enter a trade you'll be down 2 pips (the spread) immediately. Some brokers might even be showing you the median price. Just know what you're looking at.

Thanks faure

Mike

Your stop should be done at 1.9563... With a retail broker, this will mean his quote would be 1.9560/63 and you are taking his offer (just as if you were doing it live/manually, rather than leaving an order to do it)

You should deal at 1.9543..... With a retail broker this will mean his quote would be 1.9543/46 and you are selling his bid (just as if you were doing it live/manually, rather than leaving an order to do it)

I'm afraid that is exactly what would probably happen. If you specify a buy stop at a price, if the retail brokers price is offered at that price - you will deal (just as if you were buying/doing the trade live/manually). Otherwise, you are wanting the market/brokers bid to be at your stop level, and him then selling to you at his bid rate.

This is one of the contentious issues with brokers/stops/widening spreads etc.. because you are getting stopped out because that is that particular "brokers market price", eventhough the real market may be several pips away.

EG: If you were leaving a s/l in GBP/JPY at 237.77

Real/Interbank GBP/JPY price: 237.70/74
A 10pip broker price............. 237.67/77

Your stop at 237.77 would be done, as thats where the brokers offer is, eventhough the actual "market high" (ie the highest price the real "market" dealt at may only be 237.70

If you were dealing interbank, general market practice is for a price to be traded a minimum 3-5 times ie: 237.77 offer paid 3 times, or a 237.77 bid given 3 times to confirm that particular level is reached, and your stop would(should) be activated at the correct level (237.77), although a lot of banks would slip it by a pip......or two!



With some brokers you can specify orders like
"stop if bid"... "stop if offered"
In the GBP/JPY example above, if you specified a "stop if bid" price of 237.77, you would still pay the (10 pip)spread on top, so if the market did get to 237.77 bid, you would actually deal at 237.87 .

Thanks BigFace,

Nice informative answer.

So when I place a buy stop it should be at the price that I want to enter at plus the spread because the price shown on the chart is the sell price.

When I place a sell stop it is simply at the sell price without having to add the spread.

I would assume therfore that when I set a limit on a long trade, it should be set at the price that I want less the spread, and on a short trade simply at the price that I want?

Mike

I think BigFace did a pretty good job of providing the detail, but I know it can be complicated to keep things straight in your head at first.

It might help if you just remember two things:

1. There are two prices for a pair (you figured this out already).
2. Your broker will always give you the crappiest price for whatever it is you're trying to do.

If you're selling, you'll always get the lower price. If you're buying, you'll always get the higher price.

This assumes that you're trading with a typical retail broker.

mind to explain buy limit and sell limit as well.sometimes i get confuse about it.is it buy/sell limit = TP?

A buy limit order is an order to buy something at the specified price or better. A sell limit order is an order to sell something at the specified price or better.

Here's an example, sorry if chart is hard to see.
http://img96.imageshack.us/img96/6758/ssji5.jpg

In the chart the current market price is 1.4286/1.4282.
I decide that I want to BUY at 1.3985 or better, so I put in a buy limit order at that price.

Now... remembering that the broker is going to give you the "crappy" price (see my previous post), what does the market price have to be for the order to get filled?

The market price would have to be 1.3981/1.3985 or lower. If I'm buying, the broker isn't going to fill me at the Bid (lower price), he's going to fill me at the Ask(higher & crappier price).

I hope that makes sense. If not, I'll clarify tomorrow when I've had some sleep.

thanks,i got what u mean now

Its important to know exactly the order type a particualr broker offers and what you want to do.

Buy LIMIT = Buying below current price eg. take profit on a short position, open new long position on a retracement

BUY STOP = Buying above current price eg.. open new long position when price rises through a res level, stop loss on a short position

Sell LIMIT = Selling above current price eg.. take profit on a long position, open new short position .

Sell STOP = Selling below current price eg.. open new short position if price falls through a support level, stop loss on a long position



I think a lot of charts default is the bid price,( although some can be changed to offer etc), . But a frequent saying is "you cant deal on chart prices" !


I dont know what each individual retail broker policy is but the HIGH / LOW prices (not the chart prices) should be the highest bid of the day and the lowest offer of the day ie. the extremes of where you could of actually sold/bought, not including spreads etc. This will be slightly different to a "chart high/low" as this probably shows the high/low bid

Eg:
Market High/Low
GBP/USD
1.9700 high (highest bid)
1.9600 low (lowest offer)

Retail broker/Chart High Low (bid price on broker with 4pt spread around the market price)
GBP/ USD
1.9698 high (highest bid)
1.9598 low (lowest bid)

In the above retail broker example
- if you had a BUY LIMIT at 1.9600 - you wont deal (lowest broker offer would be 1.9602)

- If you had a SELL LIMIT at 1.9700 - you wont deal (highest broker bid would be 1.9698)


- if you had a BUY STOP at 1.9700 - you will deal (highest broker offer would be 1.9702)

- If you had a SELL STOP at 1.9600 - you will deal (lowest broker bid would be 1.9598

So.. we can see how the above Limit (take profit) orders would not be done, whilst the Stop Loss order would be. We can see why a broker may(allegedly) "manipulate" his high/low to trigger orders - particularly on high spread ccys.

Going back to the earlier post with GBP/JPY and a 10 pip broker price.(A simplistic example)
Lets assume the broker has clients with both take profit and stop loss orders at 237.77.
For the broker to be safe, ie not quote an outside of market/wrong price (in case someone hits it). he could quote
Real market price :237.68/72
Broker price 237.67/77 ..... Client S/L's at 237.77 DONE (broker makes 5 pips buying back from real market)

The clients with T/P at 237.77 not filled yet

Real price: 237. 82/86
Broker price 237.77/87.... Client T/P's at 237.77 DONE (finally!)(broker makes 5 pips selling to the market)
The real market may have to move several pips above/below the clients t/p level before the retail brokers price would trigger it.