How really stop loss order works

Trading
1

I have gone through many post but still unable to understand how the stop loss order works, If anybody can help in this regard.

Why I have a doubt?

For example, I buy a scrip at Rs.101 and put the SL at Rs.98. So. which means if price rise I will gain and if price fall I will loss. And as I know movement of price is driven by bid and offer price(pls correct If I am wrong). By putting the SL at Rs. 98 , I have given the offer price at Rs.98. So, offer is lower than the current market price, then it is obvious the buyer will come and accept the offer at Rs. 98 and I will definitely incur loss.But , it always not happen in that way.

So, my query is, why many times buyers are not buying at a lower price?
Is my SL order at Rs.98 not visible in market depth to buyers?

For example: the view of market depth:
Bid Price — Bid qty---------- Offer Price------- Offer qty
100 ---------------3 ------------------ 101------------------ 4
99----------------- 5------------------- 102 ----------------- 1
98 ---------------- 7 ------------------- 103------------------ 6
97 ---------------- 2 ------------------- 104 ----------------- 3
96 ---------------- 1 ------------------- 105 ----------------- 8

Thanks in advance.

2

WRONG.
SL orders have 2 prices - Trigger price & limit price.
You offer or bid only when you put limit or market order.
In SL order you ASK exchange to wait till SL trigger price is breached. If trigger price is breached, order is triggered as market order or limit order.

LTP is 100. You can put SL sell order 98. NSE waits till price reaches 98. ThEn your mkt/limit order is trig n live.
Also you can also put SL buy order at 102.

But if you put SL sell order at 102 or SL buy at 98, both orders will get triggered immediately as NSE perceives as your trig level already breached.

3

Thanks.

From above explanation my understanding is:
SL is neither a bid nor an offer price but a protection price. And the SL price is not visible to anybody. If during the normal movement of bid/offer price, at any moment it moved till the SL price, then the SL get triggered.

Am I right.

1 Like
4

Absolutely AFAIK.
Which ever direction price moves, trigger price should come first before limit price in case of SL order.
Also to warn you - never have a tight SL trigger price. Many times your SL will get hit but you will not see a price reaching in charts. Charts can capture only 3-4 ticks per seconds while there are thousands actually.

1 Like
5

Also there are not SL order supported by Exchanges. It is broker systems which manages to convert SL to L based on the trigger price.

6

Wrong info AFAIK.
Limit, Market & SL orders all go directly to exchanges if they are independent orders.
Even in BO, broker 1st send initiating order to exchange. When it is executed and this is communicated back to the broker and client, remaining two legs are also fired. So broker stores them only until then. If any if the leg gets executed the broker cancels the other order.