How do stop orders work?

[katana123]

Hi,
These are rookie questions but I want to make sure I got it right(*For the following questions I assume NinjaTrader are my brokers*):

1) "EnterLong()" command performs a buy market order that from my understanding of the how the market works, I should be filled at the current ASK price, am I right?
and the opposite should be true for "EnterShort()", meaning I'll be filled at the current BID price?

2) When will a stop market order will be triggered? If for example I'm in a long position, that means that I need to sell my asset to exit the position.
Will a market order be submitted when the BID price reaches the price I specified? Did I get it right?
Meaning, if I wrote: "SetStopLoss(CalculationMode.Ticks, 100);", than a market order will be submitted when the BID price is 100?
and is the opposite is correct for a short position - triggered when the ASK price is 100?

3) Is there a way to 100% guarantee that my stop price wouldn't be skipped? From what I read, a stop limit order can be skipped, is that true? If not, what's the way to guarantee my stop
will never be skipped?

Thanks in advance

[NinjaTrader_Kate]

Hello,

Thank you for your post.

Market orders are not necessarily filled at the current Ask price at the time the order is entered - In highly liquid markets, such as Crude Oil futures or an equity such as Microsoft, market sell orders will generally fill at the bid price and market buy orders at the ask price. However, even with highly liquid securities, this is not always the case.

In fast moving markets, market orders can result in slippage, a difference between the price the trader expected and the price where a trade is actually filled.

Stop market orders wait for the last traded price of the instrument to pass your stop price. Once it passes the stop price the order becomes a market order for execution. Stop orders increase your chances of getting filled at a particular price, but are not guaranteed because they are still ultimately market orders. However, since a market order is guaranteed to fill, this would be preferable in many cases to using a Stop Limit order, because as you mentioned, there is no guarantee they will fill and may be skipped over entirely if a fill cannot be made at the limit price or better.

If a stop market order gets skipped over due to a gap in prices it will become a market order automatically, which would guarantee a fill, just not at a particular price.

Please let us know if we may be of further assistance to you.

[katana123]

Hello,

Thank you for your post.

Market orders are not necessarily filled at the current Ask price at the time the order is entered - In highly liquid markets, such as Crude Oil futures or an equity such as Microsoft, market sell orders will generally fill at the bid price and market buy orders at the ask price. However, even with highly liquid securities, this is not always the case.

In fast moving markets, market orders can result in slippage, a difference between the price the trader expected and the price where a trade is actually filled.

Stop market orders wait for the last traded price of the instrument to pass your stop price. Once it passes the stop price the order becomes a market order for execution. Stop orders increase your chances of getting filled at a particular price, but are not guaranteed because they are still ultimately market orders. However, since a market order is guaranteed to fill, this would be preferable in many cases to using a Stop Limit order, because as you mentioned, there is no guarantee they will fill and may be skipped over entirely if a fill cannot be made at the limit price or better.

If a stop market order gets skipped over due to a gap in prices it will become a market order automatically, which would guarantee a fill, just not at a particular price.

Please let us know if we may be of further assistance to you.

Thank you very much for the detailed answer, it helped me a lot!
Just to make sure:
If for example I have entered a long trade at 100 and set my stop at 90.
You said that the last traded price should pass my stop price, meaning the bid price should be less than 90.
To exit a long position, I need to sell my asset meaning my trade will most likely be executed at the bid price which is less than 90.
I would expect it to execute if the last traded price was my stop price and not necessarily wait for the price to be less than my stop price.

[katana123]

Hi Kate,
I have another question: Where does the stop order sit?
If I submitted a stop order that is not simulated, like this:
SetStopLoss(CalculationMode.Ticks, 10);

Does the order get sent to the broker?
If my server crashes for some reason, is there a chance my order wont execute when price falls?
Is that the difference between regular and simulated stop? that the simulated stop isn't sent to the broker until the last traded price passes
the price specified in the stop order?

[NinjaTrader_Kate]

Hello katana123,

Thank you for your reply.

Where your orders reside is dependent on the state of the order and the connection you use:

https://ninjatrader.com/support/helpGuides/nt8/?where_do_your_orders_reside_.htm

Generally, if an order is in an Accepted or Working state it will in most cases reside at the brokerage or exchange. Should your computer crash, these orders would still execute. However, any additional functionality, such as the stop trailing the price, will not function. Simulated stops reside on your PC until the last traded price passes the price specified and would not execute if NinjaTrader is not running.

Please let us know if we may be of further assistance to you.

[katana123]

When you say "price passes" do you mean (less than) or (less than or equal to)?(< or <=)
I would expect it to execute if the last traded price was my stop price or less and not wait for the price to be less than my stop price because than it lowers my chances of being executed at my stop price

[NinjaTrader_Kate]

Hello katana123,

Thank you for your reply.

Sorry for the unclear wording, that's my fault. I should have stated when the last traded price touches your stop it will trigger the market order.

Please let us know if we may be of further assistance to you.

[katana123]

Thank you! I think that's it, you answered all of my questions.
Have a great weekend!