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Stop Orders

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Stop orders are generally used to limit a loss in case a security held drops in price or, when holding a short position, to limit a loss in case the security goes up in price.

An on-stop order must always be placed at a price that is away from the current market price. For example, if a stock is trading at $30, you may decide to place an on-stop sell at any price under $30 or an on-stop buy at any price above $30. If the stock price reaches the on-stop price, an order will be triggered at the limit price. As a result, the trade will be executed at the prevailing market price.

The advantage of a stop order is that you don't have to actively monitor how a stock performs. The disadvantage is that the order could be activated by a short-term fluctuation in a stock's price if the stop price is placed too close to the current market price.

To enter a "Stop" order, check the "Stop order" box and select the type of order you would like to send.

Stop limit order

This type of order allows you to specify a price at which your stop order will be sent (trigger price) as well as a limit price at which the order is sent to the Exchange. The rules vary for stop orders and are specific to each exchange:

  • TSX and TSX Venture: the limit price must be the same as the trigger price.
  • NYSE, NASDAQ: The limit price is different from the trigger price. This limit protects you against execution of your order at a price too far from your stop price. For example, you can place a stop sell order at $30 with a limit price of $28. In this case, if the stock price drops to $30, the sell order at $28 or more will be triggered. Warning: if the share price were to fall rapidly from $31 to $27, for example, you risk not having your order trigger.

Stop market order

With this type of order, you have to select a price at which your stop order will be triggered (trigger price). When the market reaches your trigger price, your order will be sent as a market order to the floor of the Exchange.

Trailing Stop Orders (VTSO)

This type of order follows the price of a stock using a price spread, in essence tracking the price of stock as it rises or falls. This type of order may only be placed when the markets are open.

Sell Trailing Stop

A trailing stop for a sell order sets the stop price at a defined spread below the market price. If the market price rises, the trigger price rises by the same amount, tracking the stock, but if the stock price falls, the trigger price remains the same. If the stock reaches the trigger price, a sell order is sent at market and filled at the prevailing market price.

Example: You bought 100 shares at $10. The stock is now trading at $15. You want to protect yourself against a drop in the stock. Instead of a stop loss order at $13, you place a trailing stop with a stop spread of $2. The trigger price is calculated by subtracting the stop increment from the current price. In the order entry screen, you can click on the "trigger price" link to retrieve this information. In this example, the initial trigger price is $13. If the stock never goes higher than $15, a market order will be activated when the stock hits $13. If the stock goes to $16, the trigger price will become $14.

Buy Trailing Stop

A trailing stop for a buy order sets the trigger price at a defined spread above the market price. If the market price falls, the trigger price drops by the same amount, tracking the stock, but if the stock price rises, the trigger price remains the same. If the stock reaches the trigger price, a buy order is sent at market and filled at the prevailing market price.

Example: You sold short 100 shares at $20. The stock is now trading at $15. You want to protect yourself against a rise in the stock. Instead of a stop buy order at $17, you place a trailing stop with a stop spread of $2. The trigger price is calculated by adding the stop increment to the current price. In this example, the initial trigger price is $17. If the stock never goes lower than $15, a market order will be activated when the stock hits $17. If the stock goes to $14, the trigger price will become $16.