A question about using a Stop Order Loss

A

alanrof

Hello,

I would like to use a direct access broker, since I'm an active trader. I been using a full access broker before there was any online brokers. I been reading alot of books on day trding and short term trading the past couple of years and been trading using E*Trade. The latest book I read is by Tony Oz and in his book "The Stock Trader" he mentions that he uses MB Trading. In this book, he shows an example of him buying a stock and using a Stop Price. I thought he put in a stop loss at the same time he bought that particular stock on the Nasdaq. When I called up MB Trading, I was told that you have to purchase that stock first, then you go back and put in a stock price in the Stop Price box. Is that true? I would purchase that stock not using on margin.

I then called up CyberCorp and I was told that I can use a trailing stop loss, a percentage stop, or just a price stop loss. I was told that I can use those three features at the same time I purchase a stock on the Nasdaq. Is that true? I went to dejanews.com and I couldn't find any information on stop loss question. How is MB Trading and CyberCorp compared to each other. I been doing alot of reseach but this is getting a little confusing. Thanks in advance.

Regards,

Alan
 
I'm surprised that your defined question wasn't answered before now. I'm not giving advise or making recommendation on any action of any kind, however, I believe you're describing using a Buy Stop order.

Essentially it stays out there until the stock price achieves (ranges in the Stop zone). For example, many proprietary traders are not able to trade equities below $5. Hence, if they have software or trade listed (which allows stop orders) they can set the order and forget it. This order might be out there in pre-execution limbo until that price target occurs and triggers the order. This would have capital usage implications against one's buying power. However, let's say that news or another event makes a low priced stock go on a rally and come close to $4, from well under $4. Let's then say that it continue to rally to $4.30, and triggers notice in your stock watch screens. A trader might enter a Buy Stop order at $5, and whence that stock pokes it price above that target the order becomes a market purchase order.

Hope that is the correct answer to your question...
 
alanrof,

With any brokerage, whether eTrade, MB Trading, CyberTrader, etc. you need to purchase the stock first (if you're going long) before you can put in a stop-loss order. Otherwise the order would make no sense since what would you be stopping?

I then called up CyberCorp and I was told that I can use a trailing stop loss, a percentage stop, or just a price stop loss. I was told that I can use those three features at the same time I purchase a stock on the Nasdaq.

Someone either gave you misinformation or your misunderstood them. Again, after you purchase the stock you can immediately put in a stop-loss, trailing stop, stop-limit target, etc. Maybe they thought you wanted to short a stock?

Each brokerage handles stops a little differently, some keep them on their servers, some software only keeps it on your computer, some are stored on ARCA, if it's a stop-limit order (on a long) you can post it to ISLD or another ECN where it will reside until filled or cancelled at the end of the day, etc.

Hope this helps because I'm not sure exactly what you are trying to find out. But I will strongly suggest that if you are an active trader as you say, then you quickly switch from eTrade over to a direct access broker.
 
Hi,

Thank you for your reply and the information. Finally, someone responded to my message. But, during the last 9 months I read a lot of books on investing, day trading, and short term trading. I learned a lot including about stop loss and trailing losses. I'm no longer use E*trade instead I'm using Datek Online Direct. I think next year besides using Datek Online I'll look into a direct access broker. What are you Magna and Limit down using. Thanks again for the reply.

Regards,

Alan
 
with a buy stop (or sell stop) at IB you do not need to own the stock first. This can be used to enter swing trades when you know your entry point in advance.

There, stop orders can be used for either protection or entry.

What you can't do at IB with a stop order is trailing though.

tntneo
 
tntneo,

with a buy stop (or sell stop) at IB you do not need to own the stock first.

All brokerages allow buy-stops or sell-stops to enter long or short positions, but I think what Alan was referring to were strictly stop-loss orders, and for those you would need to already be in the position. I'm surprised that IB doesn't allow trailing stops as they can be quite useful, but it does have those nice OCA orders.

Alan,

I'm not familiar with Datek Online Direct so I don't know it's features. Currently I use CyberTrader and am planning to add a RealTick account very shortly.
 
Just when I thought I knew what I was doing :eek: a thread like this one comes along to muddy the waters for me. Maybe someone can clear things up by defining the following order types:
-- Stop
-- Stop Loss
-- Stop Limit
-- Buy Stop
-- Sell Stop
-- Trailing Stop

FWIW, my broker only allows the use of stop or stop-loss orders. Not really sure if I should be looking for a broker that offers greater flexibility.

TIA
 
STOP not specific could be stop loss or stop limit
stop limit you are long msft @$60.00
msft bid 60.02 offer 60.03
you have selected a stop limit @59.9

msft bid drops to 59.9 your shares are sold or if
msft trades @59.91 and then bid drops to 59.89 your shares are not sold because it gapped through your stop
for a stop limit the stop must execute @your stop price
stop mkt once bid = or < your stop price stop will execute
in above msft example if a stop mkt were used stop would execute and continue to remain live till shares are sold regardless of how low the bid dropped till all shares were sold
BUY STOP your buy order becomes live once stock trades up to that price.
SELL STOP your sell order becomes live once a stock trades down to that price.
TRAILING STOP may be done as a % or fixed amount as an example and as your profit in trade increases it will sell position .25 below the high if you trailed the stop by .25
just my opinion do your own research monee
 
It might also help to think of a stop as a fixed place in time/movement. An order is an order...whether it be a market or a limit order.

The order does not become an order until the stop is hit.

You can only BUY or SELL and there is a LIMIT and a MARKET order. Everything else is a variation on these two things. Once you understand these four terms, just remember that the order is not an order until the stop is hit.
 
yep and I even helped the mess.
definitions are important.

a STOP LOSS represents the combination of stop (limit or market) buy or sell protecting a position.
Indeed you can only buy or sell, so the stop loss is an alert which will trigger a buy or sell order.
to have a STOP LOSS you need a position, otherwise there is nothing with potential loss !

a STOP ORDER is either BUY or SELL (so it is a buy stop or a sell stop). in this case it does not represent a protection against a loss or protection of profits. you may have a position in the market, but it is not always the case.

technically a STOP LOSS is using a STOP ORDER (the right one depending on your position). some brokers offer STOP LOSS 'virtual orders'. They adapt automatically to your current position in quantity and buy or sell type (ie they create a stop sell if you are long). This is why you can not have a stop loss order without any position (since you can't compute the stop orders to generate).

One thing to remember, sell stop orders are below the market and buy stop orders are above the market, regardless if you have a position or not. If you mix them up, the stop order will trigger right away.
So, repeating myself, stop orders are used either to enter or exit a position, and stop loss 'orders' are used only to exit and protect a position. (Magna, I realize the thread started with stop loss, but I wanted to make sure not to give the impression stop orders are only to exit).

please also note that stop orders are either virtual or real. Several brokers simulate this from your machine, watching the price and generating on the fly a limit or market order when the trigger is reached. Others also simulate stop orders but they do it from their servers (better). so if you have internet problems or quotes delay, your order will not be affected.
Others have stops directly at the exchange. Sometimes it is a pity because you think someone knows where your stop is...

tntneo
 
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