How do is use SL orders in the following scenarios?

#1
  1. What are the 2 ways in which you can use a stop loss order?
  2. What are the 2 types of SL order and give a 1 liner explaining each?
  3. Give an example of a.buying b. selling SL order to enter a position.
  4. Give an example of a. buying b. selling SL order to exit a position.
1 Like
#2
  1. A - Stop loss order an be used either to enter a position or exit a position.
    Exiting a position means placing a stop loss order to protect an existing position for reducing risks and exiting with a minimal loss.

Entering a position - means when a client wants to buy above the current market price or sell below the current market price, he could use the stop loss order.

  1. The 2 types of stop loss orders are - stop loss - limit (SL - L) & stop loss - market (SL - M)
    SL-L - These orders become a limit order once the order has been triggered. Hence this requires the trader to enter the trigger price as well as the stop loss price. Once the trigger price is breached, the order becomes an active limit order at the SL price entered.

SL-M - This becomes a market order once the order has been triggered. This requires only a trigger price to be entered. So when the trigger is breached, this order becomes a marker order and executes at the market price.

  1. a.Buying - If a trader wants to buy a stock XYZ @ 120 but the current price is @ 100 - he would use a stop loss order to execute. He will have to select a SL -M buy order or SL-L buy order. For SL-M buy order he will have to place only a trigger price @ 120 and the order executes at market price after the trigger is hit.
    For a SL - L he will have to place a SL trigger price slightly below 120, say @ 119.50 and then place a SL price @ 120. Once the order is triggered @ 119.50 it becomes a limit order @ 120 and will get executes anywhere below 120. [Note - if there is not order match below 120 then the order is jumped and remains pending]

b.Selling - If a trader wants to sell a stock XYZ @ 80 but the current price is @ 100 - he would use a stop loss order to execute. He will have to select a SL -M sell order or SL-L sell order. For SL-M buy order he will have to place only a trigger price @ 80 and the order executes at market price after the trigger is hit.
For a SL - L he will have to place a SL trigger price slightly above 80, say @ 80.50 and then place a SL price @ 80. Once the order is triggered @ 80.50 it becomes a limit order @ 80 and will get executes anywhere above 80. [Note - if there is not order match below above 80 then the order is jumped and remains pending]

  1. Buying - If a trader has a short position lets say @ 100 and wants to restrict his loss @ Rs20. He will have to place a stop loss buy order @ 120. He could either use SL-M and place the order with a trigger of 120 or he could use SL- L and place a trigger @ 119.50 and SL @ 120.

b.Selling - If a trader has a long positon @ 100 and wants to restrict he loss to Rs20 , he will have to place a stop loss sell order @ 80. He could either use SL-M and place a trigger @ 80 OR he could use SL-L and place a trigger @ 80.50 & SL @ 80."

1 Like
#3

Hi Bhuvanesh, this is perfect. Just refer to point b. b.Selling - If a trader wants to sell a stock XYZ @ 80 but the current price is @ 100 - he would use a stop loss order to execute. He will have to select a SL -M sell order or SL-L sell order. For SL-M buy order he will have to place only a trigger price @ 80 and the order executes at market price after the trigger is hit.

“For SL-M buy order” - I guess this instead of buy it should be sell.