Wednesday, October 21, 2015

How to set stop loss in POEMS 2.0 (New feature that every one MUST know!)

What is a Stop Limit order?

A Stop Limit order is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the Trigger Price. Once the trigger price is reached, a Stop Limit order becomes a limit order that will be executed at a specified price (or better).

Is Stop Limit order type available on POEMS?

Stop-Limit orders are currently supported for orders on the Singapore & US exchanges only.

How does a Stop Limit order work?

Depending on what position that you are holding (long or short), there are two types of Stop Limit order:
  • Sell Stop Limit
This is the Stop Limit order when you have a long position on a security. In this case, the trigger price is placed below current market price of the security.
SellStopLimit

  • Buy Stop Limit
This is the Stop Limit order when you have a short position on a security. In this case, the trigger price is placed above current market price of the security.
BuyStopLimit

What is the advantages and disadvantages of a Stop Limit order?

The benefit of a Stop Limit order is that it allows the investor to enter a new position or exit an outstanding position when the price surpasses a particular price level. It also allows one to take profit or minimise losses on an existing long or short position.

The disadvantage is that there will be no guarantee that the order will be filled in the event the price gaps through the limit price. In such an event, the order will not be filled.

Example 1: Assume that stock SGX is trading at $6.81 and an investor wants to BUY once it begins to show an upward momentum. The investor places a Stop Limit order to BUY with trigger price at $6.83 and limit price at $6.84. If the price of SGX reaches the trigger price of $6.83, the order is activated and turns into a limit order. As long as the order can be filled under $6.84 (the limit price), then the trade will be done/part done. If the stock gaps above $6.84, the order may not be filled.

Example 2: An investor bought 10,000 shares of SGX stock at $6.80 and wants to limit his loss to $500. He could place a sell Stop Limit order with a Trigger Price of $6.76 and a limit Price of $6.75. If the price of SGX falls to $6.76, a limit order to SELL10,000 shares at $6.75 will be submitted and executed when the market price hits the limit price.

Is there anything I should consider before using a Stop Limit order?

Before using a Stop Limit order, investors should consider the following:
As with all limit orders, a Stop Limit order may not be executed if the stock’s price moves away from the specified limit price, which may occur in a fast-moving market.

Short-term market fluctuations in a stock’s price can activate a Stop Limit order, so trigger price and limit price should be selected carefully.

What is a Limit-if-Touched (LIT) order?

A Limit-if-Touched is an order to buy (or sell) a contract at a specified price or better, below (or above) the market. This order is held in the system until the trigger price is touched. An LIT order is similar to a Stop Limit order, except that an LIT sell order is placed above the current market price, and a Stop Limit sell order is placed below.

Using a Limit-if-Touched order helps to ensure that, if the order does execute, the order will not execute at a price less favourable than the limit price.

Is Limit-if-Touched order type available on POEMS?

Limit-if-Touched orders are currently supported for orders on the Singapore market only.

How does Limit-if-Touched order work?

Example 1: ABC shares are currently trading at $2.60.  An investor wants to open a long position to buy 10 lots of ABC shares only when the price of ABC shares falls back to $2.50.  However, he also wants to buy at a better price than $2.50, for instance $2.40.  In this case, the investor can enter a LIT buy order with an order trigger price of $2.50 and a limit price of $2.40.  During the day, if the price of ABC shares starts falling from $2.60 and reaches $2.50, the LIT buy order is converted into a limit buy order for 10 lots of ABC shares at $2.40.  The buy limit order will only be executed at $2.40 or better price.  If the market price never goes down to $2.40 or better, the order will not be executed.

Example 2: An investor enters a Limit-if-Touched sell order at $3.50 for 10 lots of ABC shares.  The price of ABC shares starts rising from an opening price of $3.30 and reaches $3.50 intraday.  Upon the price of ABC shares reaching $3.50, the Limit-if-touched order is triggered, and is converted into a limit sell order for 10 lots of ABC shares.

What are the advantages of using Limit-if-Touched orders?

Limit-if-Touched order benefits investors by providing the flexibility to buy and sell at specific price levels without investors having to constantly monitor market movements. It is particularly of use in fast-moving markets, when investors may not be able to react in time to take advantage of buying or selling opportunities.

What is the difference between Stop Limit order and Limit-if-Touched order?

The difference between a Stop Limit order and a Limit-if-Touched order is that a Stop Limit order is typically used as a loss-limiting mechanism in respect of open positions, while a Limit-if-Touched order is used to create new positions in anticipation of a particular reversing trend.  In a falling market, an investor may want to enter the market at a favourable price should the market rebound.  Similarly, in a rising market, an investor may want to enter into a short position should the price begin to fall.

What should I take note of before using a Stop Limit order or a Limit-if-Touched order?

  1. For all SGX Advanced Orders, clients are to ensure that their trading accounts have sufficient buy or sell trading limits to allow orders to be submitted when Stop Limit order's triggering conditions are met, else order triggered may be rejected due to insufficient trading limit.

  2. Please take note that the Trigger Price cannot exceed 20 bids from the Last Done Price and the limit price cannot exceed 20 bids from the Trigger Price

  3. There is no guarantee that the Stop Limit order/Limit-if-Touched order will be filled in the event the price gaps through the limit price

  4. Please note that advanced order can only be triggered during market open phase. Overnight advanced order may get rejected by exchange after the market is open if the limit price is outside of the allowed price range when the advanced order is triggered.
Reference: Poems 2.0

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