I tried to place an buy order with" SL"option for a trade which i started by selling the stock first but when tried to put the order with stoploss i entered the triggered price which is higher than my selling price natuarally it is higher than the limit buy price i waS ENTERING. The system showed an error that trigger price cannot be higher than the limit price i was entering. Could someone please explain this error please?
A SL order(Stoploss Limit) consists of a price and a trigger price.
The purpose of providing a price and a trigger price is to provide a capping for the stoploss.
Let me give you an example:
If you have first sold a position at 100 and you intend to keep a Buy SL at 105. Here you have to enter a price and a trigger price.
For a Buy SL, the trigger must be hit first for your SL order to be activated.
Let’s keep the trigger at 105. Now you have to determine the price in your SL order. Since the trigger price and price cannot be the same, the minimum difference between trigger and price must be 0.05.
Now you can place your trigger at 105 and your price at 105.05. Now if the price of 105 is triggered, whatever is the price at or below 105.05, your SL order will be executed. Here, 105.05 is your capping.
If you place your trigger at 105 and price at 105.25, then 105.25 will be your capping on the SL order if the price of 105 is triggered.
Cautionary Note : When the SL order is triggered, it is only then that the Price order(Limit Order) is sent to the exchange. If the market has a sharp upmove and moves above your SL Price level even before your Price order has been stamped by the exchange, then your SL order will still remain open.
This scenario of sharp market moves is curbed better by a SL-M order where when your order is triggered, your position will be squared off at whatever is the market price.
okay so that means for an active order like the example you gave the SL order does not consist of a limit buy order and stoploss price instead it consists of a trigger price which if touched eventually places the stoploss bbuy order. Am i correct?
Hi Abhra, always remember 2 things while buying or selling with triggers:
A) If you are buying with Trigger, the trigger price would be smaller than your limit price.
Ex: If you are looking to buy a stock only if it hits 125.4 and are willing to pay maximum 126 for that stock, then your trigger price should be 125.4 and your limit price should be 126. If this trade happens, as soon as the stock price hits 125.4, your order which was sitting in the system passively would get activated and then because you put a maximum limit price of 126, any price till 126 would get executed. It can be 125.4, 125.45, 125.5, etc etc but cannot be more than 126.
Note 1) If you are using this facility of stoploss and if a big event happens, there is a chance your stoploss trigger price could get hit but you won’t get any buy orders executed. Reason being that because the event was so powerful it just rocketed the price higher within a second so order got triggered but limit order of 126 could not buy you any shares as the price just jumped from 125.3 to 126.05. In this case, as your passive order got triggered but did not get executed, it would now sit in the system as a pending buy order for a price of 126 which was the maximum you were willing to pay.
Note 2) For selling trigger price, trigger price is smaller than the limit price.
I hope this clarifies any doubts.