Theoretical IB stop loss question?

T

Trend Fader

If I were to place a stop loss for a stock I went long during the day and hold the stock overnight along with the stop loss... is it possible for the stop to be taken out at some wacky price well under my stop price?

Does this ever happen? How exactly does IB calculate stop loss for stocks.. when does it trigger them.. am I really safe placing a stop loss overnight? For example.. assuming I am long 1000 shares at 10 and my stop is 9.. and some weird trade was done at 8 in the overnight or premarket market.. then all the sudden can IB trigger the stop and hit some erroneous bid ( because the stop loss is now a market order)?


--MIKE
 
I wouldn't advise using stops after hours. In markets where there is a lack of liquidity you can get crushed. Example: assume you have a stop loss placed at $50 and 100 shares trade at $50. You would then have a market order to sell. If there is no bid, you could theoretically sell as low as 1 penny.

Defense:
1. Only use stop limits.
2. If you really want an after hours stop use a double trigger. (i.e. needs to trade on the last twice or use the ask as the double trigger (i.e. make sure there really is an offer out there and not someone hitting a bid with an erroneous entry).
3. Don't use them after hours.

I will repeat myself and recommend item 3.
 
You should read the IB help page about stop orders to get an official answer, but basically:

1) For US stocks, stops are not triggered by market action outside of regular market hours (i.e., 9:30 am to 4:00pm ET).

2) A sell stop is triggered when the OFFER (not the last trade) hits your stop price. Vice-versa for buy stops.

3) Once a stop is triggered, it becomes a MARKET order. So if the best bid is .01, that's where you will be filled....UNLESS you enter a limit price, too (a STOP-LIMIT order). I would suggest that you do that, to protect yourself from a catastrophic fill...especially on thinly traded stocks. Just enter a limit price 2 % or so below your stop price. Of course, the risk there is that you may not get filled at all.

Take your pick.

saxon
 
1) For US stocks, stops are not triggered by market action outside of regular market hours (i.e., 9:30 am to 4:00pm ET).


---

DEF,

Is that official? So then one wouldnt have to worry about after hours trading US stocks?

--MIKE
 
DEF,

Are you saying that the new one will have stops trigerred outside regular market as default? If so that crazy... I am sure some one wont know.. and get screwed,

--MIKE
 
So if i were to place a buy stop order midnight at 96 for a stock that closed at 95.. regardless of what happens outside of 9:30-4:00 my order would not go through?

Also.. does IB just automatically bypass all stop orders at 4:00pm for the nasdaq? Do they have a setup where automatically all stop orders are ignored once the clock strikes?



--MIKE
 
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