Futionary: The Stop/Stop Limit Order

July 22, 2014 1:57PM CDT

The Good, The Bad, And the Ugly

We have covered stops in previous blogs. The most common complaint from traders is the amount of slippage that occurs when their stop order is elected and executed. All stop orders, once elected, become market orders. When a market is illiquid or trading under fast conditions, your stop will more than likely be filled at a price worse than you intended. That is the UGLY.

In order to prevent your order from slippage, you can place a stop order with a limit price (hence, the stop/stop limit order). For example: If you are trading the EMINI SP 500 and want your sell stop at 1963.00 but do not want to receive a fill worse than 1964.00. The order would read “buy 1 September EMINI SP 500 at 1963.00 stop/1964.00 limit.” You cannot receive a fill worse than 1964.00. That is the GOOD.

However, as much as you wish to preserve equity and get the best possible price on your stop order, the BAD is that you may not be filled at all. Once the market skips over your price due to illiquidity or fast market conditions, you cannot get a fill unless the markets trades back to the limit price of your stop/stop limit order. If the market never retreats and this is an order to protect your position you will not be filled and your losses will increase. If you are using the stop/stop limit to enter a new position, you may not establish that new position at all at the price you wanted. Before you think about using the stop/stop limit order, re-think what you wish to accomplish and if you are willing to accept no fill over no slippage. As always, if you have a term that you want explained please give me a call.

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This material has been prepared by a sales or trading employee or agent of RJO Futures and is, or is in the nature of, a solicitation. This material is not a research report prepared by RJO Futures Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.