0

A GTC, stop 65 RMB, limit 100 RMB buy order means start buying the security when it rises above 65 RMB, and stop buying when it reaches 100. So why is it called stop and not start?

4

Historically they were conceived as a way to cut losses when the market turned against you. You would tell your broker something like "buy me 100 shares of Anaconda and stop me if it goes below $110" You can read references to this in old books like Reminiscences of a Stock Operator, the ABC of Options pricing, or the Day Trader's Bible.

3

I had this exact question and wasn't entirely happy with the answers given, so here's what I ended up finding out:

A Stop Order: such as a Buy Stop or Sell Stop, is indeed an order to /start/ (that is to "open") a trade.

So why is it called a Buy/Sell Stop?

Because you use it to hedge a loss on an order to buy or sell.

Example if selling: I want to Sell X if X's price goes above $50 for I predict at $50 X is being overbought and the price action will quickly correct itself to a lower price and I want to capitalise on that by selling at its peak, so I put in an order to sell, but, in case I am wrong, I want to STOP selling and start BUYing if X's price reaches $55, because at $55 I predict X has already begun an upward trend instead, so on my order to sell I put in a BUY STOP - stopping my order to sell at $55 and starting my order to buy at $55, because I don't want to lose out on being able to sell them at a higher price.

Hence why BUY STOP (or sell stop in an inverse trade scenario) doesn't sound right at first glance but makes sense in the end!

Another Stop Order is a Stop Loss Order, which shouldn't give confusion behind its name because it would simply stop (exit) your order at $55, without any further action.

Hope this helps anyone.

2

A stop order can be used to both enter or exit a position. A stop loss is used to set the price you want to get out if the price reaches that level. Whilst a stop buy or entry order is used to get into a position if the price reaches your desired level for entry.

The stop order just means that you want to place your order at that level, you then need to specify if you are buying to open, selling to open, buying to close or selling to close your position at the stop level.

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  • I have a no idea what you mean by enter or exist a position. This is not about a position. Stop order is an validity instruction. Therefore it is used to telling when to fill in an order. The stop initiate the order, where as limit is where to you the order to stop. – Ben Nov 1 '15 at 8:46
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    What George means by position is simply a trade, where you can buy to enter a long trade or sell to open a short trade, or you sell to exit a long trade or buy to exit a short trade. I am not sure what you mean by your last sentence as it doesn't make any sence, but a stop is simply an order type which can be used as a trigger point to either enter or exit a trade pretty much as George described. – user9822 Nov 1 '15 at 12:25

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