Difference between a stop and a market order

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wilkinsw
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Difference between a stop and a market order

Postby wilkinsw » 22 Apr 2013

Hi,

I'm currently researching automation of my strategy and am confused over MC's definition of a stop order.

Under strategy properties, Auto Trading, Unfilled Strategy Order Replacement:

"Convert unexecuted limit/stop entry orders to market morders after x seconds".

How to you define a stop order?

On my TT ladder if I place a buy stop, when anything trades that price or above it will immediately hit the offer (ask). This means execution is virtually guaranteed albeit with the risk of massive slippage (more often it will execute at the stop price). Therefore how does MC handle/define a stop order, why may that not be executed and what is meant by converting it to a market order?

As a seperate question. If I'm trying to enter with a stop order but do not want it to execute in the case of extreme slippage, is there any way to code this ("price reasonability" settings or something like that)? The TT ladder equivalent of this is: if buying at market, is to hover the mouse on the blue side no higher than the highest price you are willing to pay. This usually just results in lifting the offer that was trading when you went to click however during fast markets conditions if you miss the execution and the bid is suddenly higher than the highest price you willing to lift (where your mouse is hovering) then you are just left on the bid. The result is that you've missed the trade however you've avoided getting in at the absolute extreme of a blip.

Maybe the solution to this point is to execute an above market limit order if the stop price is touched (limit if touched order). Is this possible with MC?

Thanks in advance!

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furytrader
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Re: Difference between a stop and a market order

Postby furytrader » 22 Apr 2013

I can't speak to precisely what MultiCharts intended with that particular setting, but the way to "avoid" extreme slippage on a stop is to use what's called a stop limit order. This is a stop that will only be executed within a certain band - so, for example, let's imagine you're trading E-Mini S&P 500 futures. You could work the following order:

BUY 1 CONTRACT ESM3 @ 1559.00 STOP

- As you mentioned, this order will be automatically converted into a market order (and hit the prevailing offer) if the market trades at or above 1559.00. If the market were to gap higher, let's say, from 1558.50 to 1563.00, you would be filled somewhere around 1563.

You could also work the following order:

BUY 1 CONTRACT ESM3 @ 1559.00 STOP 1559.50 LIMIT

With this order, you're guaranteed that your fill will be somewhere between 1559 and 1559.50. However, you are NOT guaranteed that you will be filled if the market trades at or above 1559 since the order is not converted into a market order (as the plain stop order is); instead, you will be working a limit order 1559.50, which means you could be filled at 1559.00, 1559.25 or 1559.50.

Note that if the market were to gap from 1558.50 to 1563.00, you would NOT be filled using a stop-limit order, but rather you would be left working a limit order at 1559.50.

This may be the situation in which MultiCharts would decide to convert the order to a market order after XX seconds or minutes.

Hope this helps.

wilkinsw
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Re: Difference between a stop and a market order

Postby wilkinsw » 22 Apr 2013

Great reply thanks. Didn't know the solution for executing a stop like that was so simple.

I'll just wait for confirmation now from MC that this is what they meant re converting a stop order to a market order.

wilkinsw
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Re: Difference between a stop and a market order

Postby wilkinsw » 26 Apr 2013

I'm still seeking further clarification with regards to how multicharts defines a stop order.

I'm reading a lot of posts that mention unfilled stop orders.

If I have a buy stop in the Bund at 146.00: if price was trading below then moves up and touches 146.00 I'd expect MC to immediately issue a market order to buy. Hence fills should not be an issue with a stop order. This is the central paradigm to which I've worked in discretionary trading for the last few years. If I have a stop order on my TT ladder, I'm in the market when in touches without fail (often with slippage). That's unless I've defined my order as a stoplimit.

Can someone please clarify. Thanks!!


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