Stop Orders

There are 2 types of Stop Orders: Stop Limit Order, and Stop Market Order.

Stop Limit Order

Stop Limit Order executes a Limit Order at a specific price after the instrument’s Mark Price crosses the Trigger Price. Traders use it to have greater control over the execution price, particularly in volatile markets. They might employ this order to limit losses or protect profits without the risk of slippage associated with stop-loss orders.

However, in fast moving markets, the market may gap over the limit price, which results in the stop being triggered but potentially leaving the limit order unexecuted if the asset’s price doesn’t return to the limit price.

Stop Market Order

A Stop Market Order is designed to sell or buy a security when it reaches a specific price, known as the Trigger Price. Once the instrument’s Mark Price crosses the Trigger Price, a Market Order would be executed. Traders use this to limit losses or to enter the market at a breakout point.

However, in volatile markets, the execution price can differ significantly from the stop price due to rapid price changes, especially if the market gaps past the stop price, it would execute at the next available price, causing slippages.