Stop-entry orders are a way to enter the market at a predetermined price. Explore important information that you need to know about stop-entry orders in trading.
A stop-entry order, sometimes called a stop order, is an instruction to your trading broker to open a trade when the market level reaches a worse, predetermined price. If you’re buying, ‘worse’ means a higher price but if you’re selling, it means a lower price.
You can place a good-till-cancelled or good-till-date order – but selecting a price that’s worse than the current price will always be a stop-entry order. If the price you select is better than the market price, it’s a limit-entry order.
The bid price is the best price to sell at, and the ask price is the best price to buy at.
While a stop-entry order is a type of working order to enter a position, a stop loss is a risk management tool that you can attach to a trade to set a predetermined level to close your position if the market is against you.
For example, for a long position on DBS Group Holdings shares, you can set a stop-loss at a lower price that will automatically close out your position if the share price drops to this level or beyond. You can place a stop-loss on a contract for difference (CFD) stop-entry order, but it won’t come into effect until the price is reached and the trade is filled.
The main difference between a stop-entry order and a market order is the entry price level that you accept to open your position at.
A stop-entry order is a type of working order – that’s set via the ‘Order’ tab of the deal ticket on our platform – to enter a position once a specific, less favourable price level has been reached.
A market order is an instruction to open a trade immediately, irrespective of the price (whether it’s at the same level you placed your order at, a more favourable price or a less favourable price). So, the trade will be opened at the best available market price, which could be worse than the price you see on the deal ticket. This means that your position could be subject to slippage. A market order can be placed using the 'Deal' tab of the deal ticket on our platform. In summary, a stop-entry order is fill-later; a market order, on the other hand, is fill-now.
With stop and limit orders, your trade could be filled partially if your preferred price level is reached – this is based on liquidity, i.e. whether there are enough willing buyers or sellers to counter your position.1 You have to ‘accept partials’ in your settings. With market orders, your trade will be opened at the full position size you set – liquidity and the size of the order will be taken into consideration.1
Once set, stop orders are designed to work automatically1. This can be useful, especially in volatile markets when prices change suddenly and you don’t have time to manually open a trade during a short window of opportunity.
Remember, if you’re buying, your stop-entry order level will be above the current price. If you’re selling, your stop-entry order will be below the current price.
Let’s say you want to go long on Tesla shares and place a stop-entry order. You’ve conducted your own analysis and believe that Tesla shares will likely rise after reaching a certain price level. Your prediction is that this will happen when the Tesla share price, which is currently at 247.50, goes up to 249.00.
So, you decide to open a CFD trade and set up a stop-entry order to buy (go long on) 10 Tesla shares when the price hits 249.00.
If the Tesla price reaches 249.00, you’ll have an open position as your stop-entry order will be executed. You decide to manage your risk based on the amount of loss you’d be prepared to weather, so you also place a stop-loss order at 245.00. If the Tesla share price drops by this much, your stop-loss order will close out your trade, preventing further losses.
If your stop-loss were to kick in at 239.00 due to the market gapping, for example, you’d incur a loss of $100.00 (10 x [249.00 – 239.00]). However, if the Tesla share price rallies to 259.00, you’d make you a profit of $100.00 (10 x [249.00 – 259.00]).2
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1 With limit and stop-entry orders, the entire order may not get filled (depending on market liquidity). Whichever order type you use (including market orders), positions may not open automatically, depending on size and liquidity. In the case of limit and stop-entry orders, positions may also not open automatically due to partials.
2 The commission fee and other applicable costs apply.
3 When you have ‘net off’ selected on the deal ticket, it means that we’ll close existing opposing positions in the same market before opening a new trade, which will decrease your exposure to that market. If you have ‘force open’ selected on your deal ticket, can hold positions on the same market in opposing directions, which enables you to hedge your existing exposure.
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