A question on stop orders

Discussion in 'Order Execution' started by ciccio, Jul 6, 2018.

  1. ciccio


    I know that a Stop Order is an order to buy or sell a security once the
    price of the security reaches a specified value, known as the "stop
    price." When this stop price is reached, the order automatically turns
    into a market order and is executed as soon as possible at the current
    market price.

    My Question: is the time of this new “market order” equal to the
    initial “stop order” submission time or is it the time when the ”stop
    order” turns into a “market order” ?

    Here’s an example:
    XYZ is currently trading at $20.50, and trader “1” sumbits a stop order
    to sell at $20.00.
    Later, trader “2” submits a “Market Order” for a huge quantity.
    What happens when the price reaches $20.00 ?

    Is the “market order” or “stop order” the one who has time priority ?

    Thank you
  2. Robert Morse

    Robert Morse Sponsor

    When your stop order is triggered, the stop order is deleted and replaced with a new market order. Time priority would be based on when the market order reaches the exchange order book.
    comagnum, CSEtrader and ciccio like this.
  3. lindq


    Much will depend on how your broker handles stop orders, and how you ask your broker to handle them. Are they hidden?

    But a market order that is entered precisely at the same time as your stop price is hit, is most likely going to be filled first, if only because it takes time for your stop to be processed and sent to the market as a market order.
  4. qxr1011


    in theory the answers above cover the situation

    in practice if nothing is going on in the market you will be executed almost instantaneously upon your market order reaches the market maker...as in the theory

    but if it is major movement happens in the market , then the execution of your market order will be probably delayed, and you may be executed at the worst possible price when the market settles down... in fact you may see that the market made a u-turn and your order executed on the bottom of it :)

    so I would recommend to consider the stop-limit order...also in this case you risking not being executed at all...
    beginner66, padutrader and CSEtrader like this.
  5. qlai


    I wander if anyone can confirm/deny this. I've read something similar to this. It said that marketable (not resting ones) limit orders will be executed before any market orders. The reason given made lots of sense to me ... Exchanges make money on volume. The market orders will always match while limit orders may not. Hence exchanges will always try to match as many limit orders as possible prior to matching market orders. So l wouldn't be surprised if they introduced a little delay on your market orders.
  6. Robert Morse

    Robert Morse Sponsor

    No, not true. Marketable orders are paired in time order. When you are a seller, the buyer is paired with the next seller at that price. The buyer that is the next one up from time order. The only exception is the NYSE where a floor permit holder gets a match with the order book. This only affects the provider of liquidity.
  7. qlai


    Do you agree that there is an incentive to match marketable limit orders prior to market orders?
  8. Robert Morse

    Robert Morse Sponsor