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Question

What is the meaning of Stop Loss of the bracket in the Sell Stop Limit order on the current position?

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Background

Having the position with the current price 59.80, thinking to place a sell order to stop loss at 58.00. The order allows "Bracket" to "Stop Loss" in the stop loss order I intends to place.

I am not sure what it means. Is this a Short which is actually borrowing from someone and sell them now and not selling the current position? What happens if the price hits 58?

Please help to understand the details.

  • This is an existing short position, right? – Bob Baerker Dec 26 '18 at 23:12
  • Hi @BobBaerker, thanks for the follow up. Not a short position. I bought an ETF x 5 and in case the price crashes, try to place a sell order to stop loss. I am using Interactive Broker so it can be its specific feature. – mon Dec 26 '18 at 23:40
  • Hi, Bear with me. The reason I asked that is that the numbers in the picture for the bracket order confuse me. The Profit Taker number is $57 and that is below current price so that implies a short position at a higher price, as does a stop loss above. Or did you enter these numbers while attempting to set it up? Apart from that, a bracket order permits two conditions, a stop loss price and a take profit price. For example, if you buy at $100 and you want a 2% bracket, you set the stop loss order at $98 and the take profit order at $102. – Bob Baerker Dec 26 '18 at 23:54
  • Hi @BobBaerker, thank you for your help. The prices (Profit Taker/Stop Loss) were auto populated. I am very new to trading but in my understanding, they are buy to exit and buy to protect for price up so it seems to me the order is to create a short position. However actually my intention is to place an order in case the price drops below 58 using sell stop limit. Am I doing something wrong? – mon Dec 27 '18 at 1:06
  • The auto populating explains my confusion. If you're long then IB's auto pop should place the stop price below and the take profit price above or better yet, put nothing in the box. They have a number of glitches like this. You're not doing anything wrong as long as you enter the correct prices. If not aware of it, they have an page of algo orders on the web site that explains each one and some have attached videos. – Bob Baerker Dec 27 '18 at 2:19
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I think what is happening is that when you are entering the order to sell, you are given the opportunity to attach a buy order that would subsequently "close" the trade as if your sell order were creating a short position. This is why the stop loss is higher than the limit price. If you wanted to use this screen to make a sell bracket, you would have done so when you entered your original buy order. It is a shortcut that pre-places a "closing" order opposite to the current order.

If you just want a stop order to sell your existing long position, I don't think you need to use this "attached" order at all. Try unchecking those choices.

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Reading between the lines in your question, you don't seem sure about this. I'll go over the whole screen and hopefully it will make sense.

A quick google reveals that you're trading the SPYX ETF which tracks the price of a basket of fossil fuel companies. They'll tend to be a proxy for the combined price of natural gas, coal and oil. Personally, I would check to see if one of these prices dominates the others - there's no point keeping an eye on the coal price if an oil company makes up three-quarters of the fund.

On the next line down, you have a SELL with a green dot on it. The order you're placing is a short, i.e. you want the price to go down. Your position size is 5. No currency is given here so I would assume 5 of whatever currency your account is in per one cent movement in the EFT price. Let's say dollars for simplicity.

Next along is 'STP LMT'. You're placing a stop-limit order with a stop of 58.00 and a limit of 58.00. The GTC means "Good 'til Cancelled".

The stop-limit order means that when the price moves below 58.00 the order becomes a limit order. The limit of 58.00 means that the price has to be at or move below 58.00 to be executed. See https://www.investopedia.com/terms/s/stop-limitorder.asp and I would double check the documentation for your platform for the exact details of how that works with them.

On top of that, the box below is attaching two additional orders to the first. These will only become orders if the main stop-limit order is executed.

The first line is the LMT (a normal limit) order at 57.00. If the price drops to or below 57.00 the trade is closed and you'll bank around $500 profit (depending on slippage).

The second line is the STP (a normal stop) order at 59.00. If the price increases to or above 59.00 the trade is closed and you'll lose around $500 (depending on slippage).

If either the STP or LMT orders are executed then the trade is closed and the one that wasn't executed will be cancelled.

The box at the very top (BID MID ASK) seems to be allowing you to determine which price you're using for the order. In this case, you've taken the default MID price. As this is an ETF I wouldn't expect the BID or ASK price to get very far from one another, but if the market moves really fast it's possible.

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