Stop order execution

[Oskeewow]

Does anybody know if an actual trade is required to trigger a stop? I'm wondering specifically about some of the illiquid/low volume contracts. For example, if I have a stop sell order at a price of 50.00, and the contract goes offered at 50.00, and keeps getting offered lower before finally trading down at 49.00. Does this just contribute to slippage? Or will a offer at/lower than a stop sell price trigger the stop?

 

[Rhody Trader]

Generally speaking, once the market goes offered at your sell stop price your order will become a market order and be placed in the cue for execution. If there are no other sellers at that point, you will get filled there. If there are already other sellers ahead of you in the queue, then your order will get executed when your turn comes, which is where slippage comes in.

 

[Oskeewow]

Thanks, that's what I was hoping for. One other question on stop mechanics, if you don't mind...

How does time priority work over different price levels? If there are 1 lots bid at 50, 49, 48, and 47. And I place a stop sell at 49, then you place a stop sell at 50. The 50 bid disappears but does not go offer. Then somebody else hits the 49. Whose stop triggers first - who fills at 48 and who gets 47? I placed mine first, but yours has higher trigger price. Does it matter if they are stop-market or stop-limit?

Sorry if this is nitpicky. I just want to make sure I'm very clear on what to expect before I start relying on stops for competitive entry as well as for stop-loss. I appreciate your sharing your expertise.

 

[Rhody Trader]

First the stop vs. stop limit. A standard stop becomes a market order when the trigger price is reached. A stop limit becomes a limit order. The former will be filled at some price. The latter will only be filled at the stop price or better (lower for buy, higher for sell).

As for order precedence, the order which goes market first should be top of the queue. If you have a 49 sell stop and someone else comes in with a 50 sell stop, the latter will get filled first because 50 will be reached before 49. If the current market bid is 50 when the 50 stop is put in, it will automatically be triggered right away.