Comment on Stop Loss orders - Limit/Market

Venu commented on 22 Jun 2016, 10:21 PM

There seems to be some confusion Shikha.
You place an SL-M order AFTER you’ve bought or sold. The initial buy or sell order that you place can be a limit order/market order. So when you place an SL-M order, it’s just one order. There’s no ‘entry’ & ‘exit’ order for an SL-M. There’s only one trade that happens when you place an SL order.

To explain with an example:

Let’s assume you buy Reliance 980. Now assume the maximum risk you wish to take on this position is Rs.10 which means you want to sell if Reliance comes down to 970. How do you ensure this happens? You can use the SL/SL-M feature whereby you can place an SL-M order by which you inform the system to automatically sell the position if Reliance touches 970. So, effectively SL/SL-M order is only executing 1 trade, it’s selling your already existing position since you’re the price has come to the point where you desired to exit.

In the above example, there are 2 types of orders you can place:

1) SL 2) SL-M

When you place an SL order you have to specify the Trigger price & the limit price. Eg: Assume you specify the trigger price as 970 and the limit price as 969. When the stock price drops from 980 and touches your trigger price (970), an order to sell Reliance is sent to the Exchange at 969. If there’s a corresponding buyer available at 969, then your order gets traded, else the order remains pending in the system as a limit order.

When you place an SL-M order you only get to specify the trigger price. Assume you specify it as 970, the moment the stock price hits 970 on its way down from 980, a market order to sell the stock gets sent to the Exchange at Market price. If the corresponding buyer at that stage is available at 945, then your trade gets executed at 945. This is why we don’t suggest placing Sl-M orders for stocks/contracts where the liquidity is low.

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