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IBKR Stop Limit Orders are a type of order that combines the features of a stop order and a limit order, allowing you to buy or sell a security at a specific price, but only if it reaches a predetermined stop price.
This type of order is useful for limiting potential losses or locking in profits, as it will execute at the specified limit price once the stop price is reached.
To place an IBKR Stop Limit Order, you'll need to specify the stock symbol, the stop price, the limit price, and the quantity of shares you want to trade.
IBKR offers a range of order types, including Market Orders, Limit Orders, and Stop Orders, each with its own unique characteristics and uses.
Check this out: Limit Orders
What Is a Stop Limit?
A stop limit is a type of order that combines the features of a stop order and a limit order. This order becomes executable once a set price has been reached, and then it's filled at the current market price, but only if the price is at or better than the limit price specified by the investor.
A stop limit order is typically used to buy or sell a stock once it reaches a certain price, known as the stop price, and then the limit price is the maximum price the investor is willing to pay or receive. For example, if an investor wants to buy Apple stock once it starts showing upward momentum, they might put in a stop limit order to buy with the stop price at $160 and the limit price at $165.
The key difference between a stop loss order and a stop limit order is that a stop loss order assures execution, while a stop limit order ensures a fill at the desired price. A stop loss order will get triggered at the market price once the stop loss level has been breached, whereas a stop limit order will only be filled at the limit price or better.
Stop limit orders are commonly used in combination with stop loss orders to ensure that the order is not completed unless the price is at or better than the limit price. This helps investors avoid getting filled at less than desirable prices in a fast-moving market.
Here are some key facts to keep in mind when using stop limit orders:
- A stop limit order will only be triggered during regular market hours, which is generally 9:30 a.m. to 4 p.m. EST.
- The order will be filled at the current market price, but only if the price is at or better than the limit price.
- The limit price is the maximum price the investor is willing to pay or receive.
- Stop limit orders can be used to buy or sell a stock once it reaches a certain price, known as the stop price.
- The stop price is the price at which the order becomes executable.
How Stop Limit Orders Work
A stop-limit order is a type of order that gives you precise control over when it should be filled, and at what price. It requires setting two price points: the stop price and the limit price.
The stop price is the price at which you want the trade to be triggered, and the limit price is the price at which you want to buy or sell the security. If the price of the security reaches or falls below the stop price, the trade will be triggered.
A time frame must also be set during which the stop-limit order is considered executable. The stop-limit order will be executed at a specified price, or better after a given stop price has been reached.
Here's a summary of the key components of a stop-limit order:
Component | Description |
---|---|
Stop Price | The price at which the trade is triggered |
Limit Price | The price at which you want to buy or sell the security |
Time Frame | The period during which the stop-limit order is considered executable |
How Long Do They Last?
Stop-limit orders can be set to expire at the end of the current market session as day orders.
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They can also be set as good-til-canceled (GTC) orders, which carry over to future trading sessions.
Different trading platforms and brokerages have varying expiries for GTC orders, so it's essential to check the time period when your GTC order will be valid.
Typically, GTC orders are valid for a specific period, but the length of time varies by platform.
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Type in Depth
A stop-limit order is a type of order that gives you precise control over when your trade should be filled.
You set two price points: the stop price and the limit price. The stop price is the price at which you want the trade to be triggered, and the limit price is the price at which you want to buy or sell the security.
A stop-limit order will be executed at a specified price, or better, after a given stop price has been reached. This type of order is an available option with nearly every online broker.
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There are two main types of stop-limit orders: buy stop-limit orders and sell stop-limit orders. Buy stop-limit orders are placed above the market price, while sell stop-limit orders are placed below the market price.
Here's a breakdown of the key differences between stop orders and limit orders:
Order Type | Description |
---|---|
Stop Order | Becomes executable once a set price has been reached and is then filled at the current market price. |
Limit Order | Set at a certain price and only executable at times when the trade can be performed at the limit price or at a price that is considered more favorable than the limit price. |
A stop-limit order can be a powerful tool in your trading arsenal, but it's essential to understand that it does not guarantee that your trade will be executed. If the price of the security drops quickly or there is a gap in trading, the order may not be filled at the desired limit price or at all.
Advantages and Disadvantages
IBKR stop limit orders offer precise control over when the order should be filled, but they are not guaranteed to be executed.
One of the main advantages of stop limit orders is that they allow traders to control the price at which they enter or exit a trade. This means that you can set a limit price that is higher or lower than the stop price, depending on whether you are buying or selling.
Risk management is another key benefit of stop limit orders. By setting a stop price, investors can limit their losses if the market moves against them.
Stop limit orders can also be used to automate trading, freeing up time for other activities. Once you place a stop limit order, it will automatically be executed when the stop price is reached.
The flexibility of stop limit orders makes them a versatile tool for traders. They can be used in a variety of trading strategies, including day trading, swing trading, and position trading.
Here are the key advantages of IBKR stop limit orders:
- Price Control: Control the price at which you enter or exit a trade.
- Risk Management: Limit your losses if the market moves against you.
- Automation: Execute trades automatically when the stop price is reached.
- Flexibility: Use in various trading strategies, including day trading, swing trading, and position trading.
Stop Loss and Stop Limit Orders
A stop-loss order will get triggered at the market price once the stop-loss level has been breached, which can be a major risk when a stock gaps down.
The price at which the stop-loss order gets filled can be well below the level at which the stop-loss was set, leaving the investor with a money-losing position.
Check this out: Stop Loss Order vs Stop Limit Order
A stop-limit order, on the other hand, combines the features of a stop-loss order and a limit order, ensuring that the order will only be filled at the limit price or better.
This means that the investor has greater control over the execution price, but there's also a risk that the order may not get filled at all, leaving the investor stuck with a money-losing position.
Here's a summary of the key differences between stop-loss and stop-limit orders:
Order Type | Execution Point | Pricing Protection |
---|---|---|
Stop-Loss Order | Market price | No pricing protection beyond the stop price |
Stop-Limit Order | Limit price or better | Pricing protection at the limit price |
A stop-loss order is guaranteed to be executed once the stop price is triggered, but the execution price may not be guaranteed, whereas a stop-limit order is not guaranteed to be executed, as the order will only be filled if the limit price is met.
Example Scenarios
A stop-limit order can be used to cap losses on a short position. If a trader has a short position in stock ABC at $50 and wants to cap losses at 20% to 25%, they can enter a stop-limit order to buy at $60 and a limit price of $62.50.
To execute the stop-limit order, the stock must trade at a price of $60 to $62.50. If the stock gaps up to $65, the stop-limit order will not be executed and the short position will remain open.
IBKR Tools
With IBKR Tools, you can create stop-limit orders that give you more control over your trades. A stop-limit order is an order that becomes executable once a set price has been reached and is then filled at the current market price.
By combining a stop order with a limit order, you can ensure that your trade is executed at a price that's favorable to you. A stop order is filled at the market price after the stop price has been hit, regardless of whether the price changes to an unfavorable position.
This can be a problem, as it can lead to trades being completed at less than desirable prices if the market adjusts quickly. However, with a stop-limit order, the limit order takes effect to ensure that the order is not completed unless the price is at or better than the limit price that you've specified.
Keep in mind that stop-limit orders are commonly free to enter into, but be sure to understand your broker's fee structure before setting orders.
Entering Stop Limit Orders
You can enter a stop limit sell order by specifying the stop price and limit price. For example, if you're long 200 shares of XYZ stock at an average price of 14.95 and you want to sell those shares but limit your loss to $190.00, you can create a stop limit order with a stop price of 14.10 and a limit price of 14.00.
The stop price is the point at which the stop limit order becomes executable, and the limit price is the maximum price you're willing to sell the shares for. If the price of XYZ falls to 14.10, a limit order to sell 200 shares at 14.00 or better will be triggered.
To set up a stop limit order, you'll need to specify the stop price, limit price, and quantity of shares you want to sell. You can also choose to have the order triggered during regular trading hours or outside of those hours.
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Here's a summary of the key settings for a stop limit sell order:
Setting | Description |
---|---|
Stop Price | The point at which the stop limit order becomes executable |
Limit Price | The maximum price you're willing to sell the shares for |
Quantity | The number of shares you want to sell |
Trading Hours | The time of day or day of the week when the order will be triggered |
Keep in mind that stop limit orders are only filled up to the quantity available at the exchange, and any unfilled order quantity will be cancelled.
Order Transmission and Execution
When you transmit a Stop Limit sell order, it's essential to understand what happens next. If the price of XYZ falls to your Stop Price of 14.10, a limit order to sell 200 shares at a limit price of 14.00 will be submitted.
The specifics of your order are as follows: you're selling 200 shares of XYZ, the average price is 14.95, and the action is a sell. You've chosen a Stop Limit order type, which is a combination of a Stop Loss and a Limit order.
Your order is contingent on the market price reaching your Stop Price, at which point the limit order will be triggered. In this case, the limit price is 14.00, which is lower than the current market price of 14.20.
Here's a summary of your order details:
Order Detail | Value |
---|---|
Avg Price | 14.95 |
Action | SELL |
Qty | 200 |
Order Type | STP LMT |
Market Price (Bid Price) | 14.20 |
Stop Price | 14.10 |
Limit Price | 14.00 |
Sources
- https://www.investopedia.com/terms/s/stop-limitorder.asp
- https://www.interactivebrokers.com/en/trading/tws.php
- https://www.interactivebrokers.com/en/trading/orders/stop.php
- https://ibkr.interactiveadvisors.com/en/trading/orders/trailing-stop-limit.php
- https://www.interactivebrokers.com/en/trading/orders/stop-limit.php
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