Explanation on stop market and stop limit orders

There are two type of new order options in new version of DFN.

1.Stop market order(Devided in to buy and sell)

2.Stop limit order(Devided in to buy and sell)

I will explain this using stop order which is also known as stop loss order.I prefer to use stop-loss order as it gives better explanation.


This is a type of order which used to stop ur loss.

There are two types.

1.Buy stop loss order

2.Sell stop loss order

Buy stop loss order:-

Usualy we put buy orders below the current market price but in buy stop-loss order we put buy order above the current market price.This seems to be absurb doesn't it ? Why the hell we pay more to buy ? Let me explain it with an example.

Current market price of ABC is 15.It starts up word momentum but I am not sure whether it would continue.And there is a strong resistance level at 17.So that I think if that level reaches or broken it would have massive bull run so that I want to buy ABC if it reaches 17 or just above 17 but I can not look at the market during trading hour due to other commitments.Here comes the usefulness of this buy stop-loss order.I can not put a limit buy order as I want to put the buy order above the current market price.Therefore I put buy stop-loss order at price of 17 or just above 17.So that if ABC share price reaches to the price of my buy stop-loss order my order will be excuted ie my buy stop-loss order becomes a market order.So that this can be called buy stop market order.

Let me explain the buy stop limit order here also using the same example.In this type order I am more careful.I do not think just breaking the resistance level is not adequate for a massive bull run. Here I think if price reaches 18 then there will be a bull run.So that I want to put a order "If ABC goes up to 17 I want to buy it at 18." Here comes the buy stop limit order.I put the stop order at 17 and put a lmit order at 18.

(If short selling is available this can be explained in another manner.But I am not going to explain it in that as it might complicate the matter.)

Sell stop loss order:-

Usualy we put sell orders about the current market price.But in this case we put sell order below the current market price.Again it seems stupid.Let me explain this also with an example.

Current market price of XYZ is 20.I bought XYZ at that price in the hope of selling it at a higher price but as usual price tends to go down after I bought them .I do not have time to look at the market during trading hours.So what should I do if I want to cut my losses ? I can not put a sell limit order below the current market price.My broker is also so busy/so lazy.So I can not trust him either.Here come the usefulness of sell stop loss order.I put a sell stop loss order at 18 which means my order become active if price of XYZ lowers down to 18 ie my sell stop loss order becomes a market order.So that this can be called sell stop market order.I think now u can work out what is the sell stop limit order.(If XYZ price lowers to 18 I want to sell at 17.50 or any other price.) This can be explained using supportive level also as resistance level used to explain buy stop loss order.

Thanks rijaya for sharing your practical experience.

Thanks Rijaya.
I read the following link which helped a lot.
http://www.tradersedgeindia.com/stop_loss.htm

Thanks Rijay.
Keep it up.

Thanks all.

Please post how to put stop loss and stop limit orders in DFN TWS. It will be a great help!

Thanks rijayasuriya for sharing! Keep it up!