How does a stop loss trigger work?

[quote=arjunbhand;147984]Arjun,

I am unable to understand how you placed a limit buy order of 126.50 with a stop loss trigger of 123? It has no meaning you should have placed a limit sell order not a buy order

The stop loss trigger is between the limit price and the LTP otherwise the system doesn't accept the order.

Anyway to explain the concept we will consider a buying example.

A limit buy price is the maximum price you are willing to pay, for example lets say "A" is trading at 100 and you place a limit buy at 95, this means 95 is the maximum price you are willing to pay for A.

Now lets suppose A LTP comes down to 99, you order will not be executed, after a while it comes down 98, your order will still not be executed, next the LTP suddenly drops to 95.50 your order will still not be executed, then it goes up a bit to 97 but your order will still not be executed. After this it suddenly drops to 95, at this point your order will be queued for execution and if liquidity is good it will be executed for 95.

On the other hand if it drops from LTP 97 to LTP 93 with no offers in between your order should be executed at 93 (or lower if liquidity is poor)

So a limit buy is the max price you are willing to pay for A it could even be a better price than the lmit but not "more" than the limit.

Reverse the above explanation for a limit sell order, so for a limit sell order it is the "minimum" price you are willing to sell for.

Now coming to the stop loss trigger price.

As I said it is to be between the limit price and the LTP, all it does is keep the limit order inactive till the trigger price is reached.

In the above example let us suppose you have purchased A at 95 and want to lmit your loss at 90 in other words you want to sell should the price go below 90, although it is cutrrently above 90. Now if you give a lmit sell order at 90 what will happen?

A will be sold immediately at 95 why? Because in a limit sell order the lmit price is the minimum price you will sell at, so it means you are willing to sell at a minimum of 95 or better, hence it will be sold at 95

Now if you want to protect your loss what you should do is issue a limit sell order at 90 with a stop loss trigger price at say 91. When you issue this order what will happen.?

Initially the order will remain inactive as the LTP is 95 and the trigger is 91, when and if the LTP reached 93 the order will still be inactive. Now lets suppose the LTP reaches 91, which is also the trigger so according to the definition of trigger I gave you above what will happen your order will become an active limit sell order at 90 which means 90 is the minimum you are willign to pay for A so A will be sold at 91 or 90.90 or 90.85 or any available price upto 90.

In case the LTP rapidly drops from 95 to 88 your order will be queued as a limit sell orer at 90 and your share will not be sold till the price reaches a min of 90, so u c it is not foolproof you have to monitor whats happening.

Now that you have read this you tell me what sort of order and what values you should put in if u would like to buy a stock say at 100 and would like to sell it either when I get a 20% margin at 120 or I can bear a loss of 5% so 95.
Re

Thank you marcus...good detail explanation.

regards
suba

glad you found it useful suba

We would create two separate transactions:

1. A Limit Order at 120.
2. A Stop Loss Limit Order with Trigger Price at say 96 and Limit Price of 95.


Let me kow if this is correct.

Bharosey.

hi guys,

I am so dumb that I could not understand your explanations. Can u guys please clarify my doubts..

suppose the Market value of xxx company is currently at 105.

I have three options to enter in (mine is reliance money account)
a) limit price
b) stop loss trigger price
c) protection %

Case 1: Buy -order type - limit
Price of the stock is decreasing from 105. I want to buy stock when it
reaches 100. So, what should be the limit price , stop loss trigger price
and protection %.

Doubt: what is the need of stop loss trigger price in buy order.

case 2: sell -order type -limit
Price of the stock is increasing form 105. I want to sell stock when it
crosses 110. So, what should be the limit price , stop loss trigger price
and protection %.

Reading all the things , I understand that Stop loss order is the order to minimize the loss for the buy/sell order that you had placed earlier .

So there are 2 orders one is buy/sell order followed buy stop loss order . Am I right ?

So what if the the initial buy/sell order moves erratically before I place the stop loss order .

Can I place a stop loss order along with initial (buy/sell) order itself ?

Per my understanding, Stop Loss is only applicable for unfavorable price movements. In both the cases you mention, the movements (per your position) are positive; so you would just set the Limit Price to 100 and 110 in Case 1 and Case 2, with nothing for Stop Loss.

Please let me know if this interpretation is not correct.

Not sure what protection % means.

Bharosey.

Limit Order :

Buying lower than CMP or Selling higher than CMP. No Trigger is required.

For ex, to Buy @ 105 when CMP is 110, just put limit @ 105.
To Sell @ 115 when CMP is 110, put limit @ 115


StopLoss Order :

Buying higher than CMP or Selling lower than CMP.

For ex, to Buy @ 115 when CMP is 110, put limit @ 115, Trigger @ 114.50.
To Sell @ 105 when CMP is 110, put limit @ 105, Trigger @ 105.50.

Cheers
PAKatil

i am new to trading.after reading all the posts,still one thing is not clear to me.


if for share "A " present market price is Rs.100. suppose the price of A is decreasing and it reached 99 . the price is going on decreasing..now i want to buy the share A at price 95.in ordinary case i will give a limit order at 95 and buy order will be executed once price of A reaches 95.
now suppose i have opted for stop loss option for buying.price of A is 100 and its decreasing.i have given limit price as 95 and trigger price as 93.will it do any help?i mean still order gets executed (bought)at 95 right? or ,if the price of A is still falling and suppose it fell till 90(not a sudden fall straight to 90).so will the share be bought at 93?or will the share be bought at Rs.95 and sold at Rs.93 since price of A is going down?
also if price of A has fallen till 94 and then it started rising.and for the whole day its price has never come down below 94.so will the buy order gets executed at 94?


also similar doubt i have in selling the share also.

suppose i bought share A at 95 rupees.if the price is still going down and i dont want to make a huge loss. if i want to sell the share at any price between 91 and 92.so i will give limit price as 91 and trigger price as 92 right?

alsoif i bought share A at 95 and suppose the present market price of A is 105 and its going on increasing.now i want to sell it when it reaches 110 or more?so giving a stop loss order with limit price 110 and trigger price 113 will do any help ?i mean if price of A has increased till 115,then will my shares get sold at Rs113 or still at 110 only? also if price has reached only till 111 and after that it started decreasing and the whole day it never has gone above 111.since my limit price is 110 and trigger price is 113 ,will the shares get sold at 111 ?


thanks in advance for all replies

Hi guys

I use Reliance Money. How will we use (stop loss) orders for the following situations:

1. Long - Stock X is trading at 105. I want to buy the stock if it goes below 100. ii) Short - Stock X is trading at 105. I want to short sell stock if it goes below 110.

2. I have stock X at 100. I want to sell if it goes below 95 (5% stop loss). I want to sell if it goes above 110 (10% profit). What are the orders to be used to satisfy both the conditions?

I am new to trading and thanks for all the members who have responded in this forum.

Cheers