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Stop Limit Orders - please clarify


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  #1 (permalink)
nourozi
New Zealand
 
Posts: 92 since Jun 2013
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Hi, it would be great if someone could answer these questions.

I'm thinking of getting an automated strategy developed which uses stop-limit orders and trading using a collocated server.

1) Do stop-limit orders usually need to be penetrated in order to be filled, like normal limit orders?

2) Will my stop-limit execution be improved considerably by using a collocated server?

3) Are stop-limit orders placed in a queue at the exchange like normal limit orders? As in, the further away from the market I place my stop limit order, the faster it will be filled once triggered?

4) What percentage of the time could I expect to be filled at my trigger price on a market like 6e or 6s trading only 2 contracts with a collocated server?

5) What kind of slippage could I expect from the trigger price? Usually be filled at trigger price but sometimes filled 1-2 ticks above/below the trigger price?

Thanks!

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  #3 (permalink)
 
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 Fat Tails 
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nourozi View Post
Hi, it would be great if someone could answer these questions.

I'm thinking of getting an automated strategy developed which uses stop-limit orders and trading using a collocated server.

1) Do stop-limit orders usually need to be penetrated in order to be filled, like normal limit orders?

2) Will my stop-limit execution be improved considerably by using a collocated server?

3) Are stop-limit orders placed in a queue at the exchange like normal limit orders? As in, the further away from the market I place my stop limit order, the faster it will be filled once triggered?

4) What percentage of the time could I expect to be filled at my trigger price on a market like 6e or 6s trading only 2 contracts with a collocated server?

5) What kind of slippage could I expect from the trigger price? Usually be filled at trigger price but sometimes filled 1-2 ticks above/below the trigger price?

Thanks!


1) Normal limit orders do not have to be penetrated to get filled. You may also get a fill when the limit price is touched. Whether you get filled, when the limit price is touched depends on the time priority of your order in the order book. When the limit price is penetrated, you are certain to get filled.

A stop limit order is a two step process. You have to enter a stop price and a limit price. When the stop price is touched, your order is converted into a normal limit order, which is executed when the limit price is touched or penetrated.

2) This depends where your stop limit order sits. If the stop limit order resides at the exchange, there will be little improvement. If the stop limit order is simulated by your broker or your trading software, then there may be considerable improvement depending on the latency of the broker server or your trading front end.

3) Your stop order will be immediately converted to a limit order, when the stop price is touched. If there are other stop orders with the same price, I suppose that they will be executed FIFO but not in relation to the specified limit price. Please study the matching rules of the exchange, where you want to execute your orders for further details.

4) As I said above, the colocated server has little impact on the execution speed in case that stop limit orders are natively supported by the exchange. Most exchanges support stop limit orders. A colocated server will lead to a significant improvement in the execution of market orders and all order types that are simulated by the broker and your front end.

5) With a stop limit order there is no slippage. Either you get filled at the limit price or better, or you do not get filled.

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  #4 (permalink)
nourozi
New Zealand
 
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Fat Tails View Post
1) Normal limit orders do not have to be penetrated to get filled. You may also get a fill when the limit price is touched. Whether you get filled, when the limit price is touched depends on the time priority of your order in the order book. When the limit price is penetrated, you are certain to get filled.

A stop limit order is a two step process. You have to enter a stop price and a limit price. When the stop price is touched, your order is converted into a normal limit order, which is executed when the limit price is touched or penetrated.

2) This depends where your stop limit order sits. If the stop limit order resides at the exchange, there will be little improvement. If the stop limit order is simulated by your broker or your trading software, then there may be considerable improvement depending on the latency of the broker server or your trading front end.

3) Your stop order will be immediately converted to a limit order, when the stop price is touched. If there are other stop orders with the same price, I suppose that they will be executed FIFO but not in relation to the specified limit price. Please study the matching rules of the exchange, where you want to execute your orders for further details.

4) As I said above, the colocated server has little impact on the execution speed in case that stop limit orders are natively supported by the exchange. Most exchanges support stop limit orders. A colocated server will lead to a significant improvement in the execution of market orders and all order types that are simulated by the broker and your front end.

5) With a stop limit order there is no slippage. Either you get filled at the limit price or better, or you do not get filled.

Why would anyone ever use a market order when you can use a stop-limit order with an offset of 1000? You don't have to pay the spread with a stop-limit.

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  #5 (permalink)
 
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 Fat Tails 
Berlin, Europe
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nourozi View Post
Why would anyone ever use a market order when you can use a stop-limit order with an offset of 1000? You don't have to pay the spread with a stop-limit.

A market order has nothing to do with a stop limit order. Probably you want to compare a stop market order with a stop limit order.

CME does not accept any market orders, but you need to enter market orders with protection. These are effectively limit orders with an offset deducted from the best bid (for a sell oder) or added to the best ask (for a buy order), where the offset is equal to half the no-bust-range of the instrument.

For example for ES, this effectively reduces the maximum slippage to 3 points.

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  #6 (permalink)
nourozi
New Zealand
 
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Fat Tails View Post
A market order has nothing to do with a stop limit order. Probably you want to compare a stop market order with a stop limit order.

CME does not accept any market orders, but you need to enter market orders with protection. These are effectively limit orders with an offset deducted from the best bid (for a sell oder) or added to the best ask (for a buy order), where the offset is equal to half the no-bust-range of the instrument.

For example for ES, this effectively reduces the maximum slippage to 3 points.

Yes, I mean, why would anyone use a stop market order instead of a stop-limit order? All you need to do is set a large offset and then it becomes like a stop-market, but you don't have to pay the spread.

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  #7 (permalink)
 
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 Fat Tails 
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nourozi View Post
Yes, I mean, why would anyone use a stop market order instead of a stop-limit order? All you need to do is set a large offset and then it becomes like a stop-market, but you don't have to pay the spread.

With a stop limit order there is no guarantee that you will be filled. With a stop market order you will always be filled as long as there are any orders in the order book.

If you use a large limit offset for the stop limit order, then your maximum slippage is set to that offset. When there is a large amount of stops such that price is driven beyond the limit price

-> case stop limit order: you will not be filled
-> case stop market order: you will be filled with slippage > limit price offset

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Last Updated on July 15, 2013


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