Stop Limit Buy Order-Definitive Description & New Idea!

🤝 Help
1

Hi All,

I’m hoping that someone here can once and for all, definitively explain to me how the T212 “Buy Stop Limit” functionality works.

The wording on the order page is what causes me the most confusion:

CT Stop Limit Confusion #01
CT Stop Limit Confusion #01396Ă—287 10.9 KB

I don’t understand why the stop price has to be ABOVE the current price??

Why couldn’t that also be a figure BELOW the current price?? Aren’t we all trying to get the best buy-in price possible??

On a standard limit order page, it simply states “Set the maximum price you are willing to pay …” This intuitively makes sense to me, as it implies the price should or could be LOWER than the current price point:

CT Basic Limit Order #01
CT Basic Limit Order #01426Ă—749 33.1 KB

I appreciate anyone’s help, who can clear up my confusion.

Kind regards.

CT

2

PS,

The title suggests I have a new idea for how the Buy Stop Limit could work, but I’m thinking that if the above question is answered by someone and the current Buy Stop Limit does what I would hope it does, then I will spare everybody the word count!?! :joy:

CT

3

PS 2,

Part of the reason I may understand less than I need to in relation to the Buy Stop Limit functionality is, I haven’t had the courage yet to try interacting with it with real money, to find out the hard way how it actually works (after all, it’s well known that “a little knowledge is a dangerous thing” :grimacing:).

CT

4

It doesn’t take much effort or time to find this information using google (or whatever your favorite web search engine is):

The article describes all of the details quite well, I’m just going to quote the example because I find it particularly helpful to understand:

For example, assume that Apple Inc. is trading at $155 and that an investor wants to buy the stock once it begins to show some serious upward momentum. The investor has put in a stop-limit order to buy with the stop price at $160 and the limit price at $165. If the price of AAPL moves above the $160 stop price, then the order is activated and turns into a limit order. As long as the order can be filled under $165, which is the limit price, the trade will be filled. If the stock gaps above $165, then the order will not be filled.

Buy stop-limit orders are placed above the market price at the time of the order, while sell stop-limit orders are placed below the market price.

5

Hi Toast,

@untoastedToast

Thanks very much for replying.

What is this “search engine” voodoo magic you speak of!! :smiley: :rofl:

I assume you weren’t being sarcastic for the sake of sounding like a smart-arse?? It’s very uncharitable. I’ve already made clear my lack of knowledge on the subject, so you don’t need to be condescending about it.

Anyway, sorry, I should have mentioned, I’ve searched and read the literature and have failed to find the type of execution strategy I’m looking for.

And because the language is different between a standard “Limit” order and a “Stop Limit” order as I demonstrated, you’ll excuse me if I’m being cautious, whilst at the same time, calling out what looks like an inconsistency in the language and mechanics of two orders that have a similar sounding functionality.

I don’t understand. Why bother with a disadvantageous extra price point of $165 in the equation? Why set out to pay more than the stop price of $160?? Simply put a standard Limit order in and fill at $160? I don’t get it.

OK, maybe you’re gonna say “because gaps”. Fine, but then there’s every chance the “Stop” would get gapped over as well, and the whole trade would get ignored anyway, surely?

Exactly what I said above. The “Limit” price is a redundant extra metric in this scenario. Why have it? If the price is moving up, fill at the better price of $160 and be done with it.

At the risk of repeating myself, surely the “Stop” part will also be ignored too.

As I asked in my original post, why can’t the “Stop” part of the Buy Stop Limit, not be below the current price like it can with a standard Limit order??

That’s what I’m looking for. I want to buy low, to sell high, not trigger higher than I could already market buy for, just so that I can then buy even higher again!! It makes no sense to me.

I want the “Stop” part to be a price below the current price (coz that costs me less for the purchase) and therefore a Buy Stop Limit order would be better called a “Buy Trigger Limit” order ie: once the price falls below the “Trigger” price (the one I want to set BELOW the current price because it’s a buy order) then I’d like to set a lower “Limit” price so that the trade executes when and if the price goes further down and potentially through that limit price.

In this scenario, everyone’s a winner because the price has a chance to get “trapped” down below the current price as it drops through the “trigger” price point. This trigger price is effectively the most we’ll pay, but potentially if the price continues dropping further, we could capture a lower price until the lower “Limit” is hit, in which case it acts like a “Stop Buy” price at that point.

Man, I hope that made any sense. If you do get a chance to help me out here, I can try and simplify it.

Thanks again for the reply.

Cheers.

CT

6

As far as I understand, one of the main use cases of buy stop limit order is to catch an upwards momentum of the stock.

If the price is currently at $150 or whatever, you can’t set a limit buy for $160. It would just execute immediately.
You use buy stop limit to automatically catch an upward momentum only if it happens and without you having to catch it manually when it is happening.

And if the share price indeed starts going up, when it exceeds $160 and continues growing, you can’t buy it for $160 anymore. So you need to set the limit buy a bit higher to ensure that your order will be filled. The $165 is just anexample, no need to overthink the exact price values here.
Maybe you would set the limit value a bit lower, if you are confident the price will grow steadily and won’t gap over your limit order. Or maybe you would rather set the limit price a bit higher to inrease your chances that your order will be filled.

And also, it doesn’t necessarily mean that you will pay $165 when you set the limit price to this value. It means that you will pay at most $165.

It is not redundant, it protects you from buying at a potentially much higher market price. The logic and reasoning is the same as when placing “normal” market versus limit orders.
I.e. you control at which price you buy (or sell) instead of blindly taking the best market offer. (which may be terrible if the spread is wide, liquidity is low etc.)
But if you don’t care about this, then you would open just a buy stop order (without the limit part)

It will not be ignored. When the stop price is exceeded, the order simply converts to limit order and is either filled or remains open, depending on where the bid/ask prices are at the time.

Because that’s not what buy stop order is. :slight_smile:
If you want to place a buy order with a price below current ask price, then you’re simply placing a buy limit order.
The “stop” component is a trigger that for Buy orders is reached “from below” (i.e. share price increases and triggers the Stop order when it exceeds the defined value).
For Sell orders it triggers it “from above” (i.e. the share price declines, triggering the Stop order when it falls below the defined value)
In another words

  • for Buy orders, the Stop price is always set ABOVE the current price
  • for Sell orders, the Stop price is always set BELOW the current price

Maybe go look up some images that illustrate what stop/limit means for buy and sell orders. A picure is worth a thousand words. :slight_smile:

This doesn’t make sense to me. Sounds like you are just overcomplicating a basic a limit order. :smiley:
If you want to buy for a lower price than what the current ask price is, just set a limit order. Why do you need an extra trigger for that.
I mean if you want to catch a price drop when the price starts to drop, you can have the limit order set for whatever the price is that you want to buy for.

7

Hey @untoastedToast ,

Thanks very much for the detailed reply.

OK, fair enough. but I have more to say on the naming of this order type later.

Yes, of course. My mistake. The logic of that is obvious (now it is! - He was a slow child :grinning:)

OK, so then let me open the batting on the naming of this type of order. Surely it would be better to be called a “Buy Trigger Limit” order?

OK, good. That ties in with my understanding above. So once again, the hypothetical price of $160, would be better called the “trigger” price, because the higher boundary price of $165 achieved is surely the “stop” part of the arrangement? Although there is subtlety to this situation I will highlight later.

Got it. That’s if the price you are discussing is rising away from you. Again, I will elaborate on my situation below.

Yes. I understand that. Thanks for clarifying.

OK. Fair enough. I’m seeing the logic here, but that assumes …

Hang on a minute, are you saying if the price gaps, the “Stop” value can never be ignored??!! That seems unlikely to be the case, unless I’ve fundamentally misunderstood the way a gap can happen (highly likely with me, as you’ve already observed).

Yes, I can see that. That’s why I’m questioning THE NAME of the order type. It doesn’t remain consistent between a Limit order (which can be placed below or above the current price), and the way the word “Limit” functions in a Stop Limit order type.

That is correct. That’s what I currently do, because I’m trying to catch a lower price (I shall explain further below).

Now you’re making my point FOR me! The word trigger would be WAY more appropriate and consistent. Even in the Sell Stop Limit context.

Not correct! That’s NOT how a standard Limit order works!! It can be below the current price with the price dropping towards it. That’s my whole point here.

I have. I am pointing out that there is a different type of legitimate order that is not covered by the currently available order types in T212’s ISA’s, and that the naming (although conventional) is very confusing when the word “Limit” changes function between the two different order types that ARE available.

Because I want the price to fall into “a trap”. I’ll explain it in words, then prepare some chart pictures shortly. See if this makes any sense to you:

  1. I’m running a “Short Sniping” strategy, using a particular indicator that signals when the momentum is downward.
  2. I have a set amount of shares eg: 100, and I’m looking to “snipe” an extra share.
  3. My red “sell” signal hits, and I sell at the current market price ASAP.
  4. I immediately take the market price I get and work out the minimum re-entry price to buyback 101 shares with the same amount of cash I have just realised through the sale (for a 1% increase on a $300 price, I calculate 300 divided by 1.01 which equals $297.03).
  5. I enter this price and it forms the first barrier that the price comes down towards (the old style Limit order price which is BELOW the market price).
  6. Once the price arrives down there, instead of this triggering an automatic Buy (like a standard Limit order), the price passes into the “chamber of never-ending doom” below, and sends me an alert to say my “minimally best Snipe price” is now locked in.
  7. The bottom boundary that I also set, is some distance further below this price (maybe a predetermined percentage), and as long as the price stays bouncing around within these two boundaries without actually touching either of them, it’s stuck in the trap.
  8. There are now three possible outcomes. Either the price climbs again sufficiently to pass through the top boundary and my “minimally best Snipe price” is triggered and I have my Buy secured, or the price continues heading South and passes out through the bottom boundary, thereby automagically achieving a much better Buyback price, in which case, happy days, as I’ve exited my position better off than the original simple Limit order would achieve.
  9. OR, if my price is bouncing around like a trapped Electron, but I want to free up that tranche of capital, I execute my Buyback by hand, and I’ve achieved the objective of “sniping” a 101 share bounty for my original $297.03 price or better, and collected up an extra share as planned!!? :grinning:
  10. This "Box Trap’ could be used anywhere up and down the price scale, and even inverted for a “Long Trap”.

Sorry, this reply has gotten really long. Pictures to follow shortly.

CT

8

Hi @untoastedToast ,

Here’s a marked up chart showing how what I am calling a “Buy Trigger Limit Trap” order type would work.

Just follow the numbers from 1-7 to follow the narrative.

CT "Buy Trigger Limit Trap" order type example
CT "Buy Trigger Limit Trap" order type example1676Ă—936 135 KB

Hope this makes sense.

Thanks again for helping me learn. Much appreciated.

CT

9

PS,

It has occurred to me (if I understand it correctly) that this order arrangement is actually an ordinary Sell Stop Limit (ie: below the current price) repurposed for the Buy side.

Instead of preventing further losses (where the word “Stop” is appropriate), this version is allowing a Buy price to fall into the region between the traditional “Stop” barrier, which I’m choosing to call the “Trigger”, and the “Limit” barrier further below.

Am I wrong??

CT