What is the point of putting a 'Stop' on an order?

I would like to know how how a ‘Stop’ is really supposed to work.

The reason I ask is as follows (example):

Sell USD Buy ZAR at 7.4100
Stop = 7.4101
Limit = 7.3700

When ZAR gets to 7.4101 the ‘Stop’ is executed BUT at the prevailing maket price.

In other words the ‘Stop’ in the above example is executed when ZAR gets ANYWHERE past 7.4101 i.e. not at EXACTLY 7.4101.

Is this correct? Is this the way it is supposed to work?

If it is then what is the point of putting a ‘Stop’ on an order if that ‘Stop’ is not executed at EXACTLY the price you set?

In the above example the price of ZAR could go to 7.4500 and that is where the ‘Stop’ would be executed so how is using a ‘Stop’ in the above example beneficial at all?

Once again - is this the way it is supposed to work or am I getting nailed by my online trading company???

Regards,

Dale.

Ideally, your stop should execute on or near the price you set. However, there are things that will interfere with that.

I imagine it depends on how quickly your broker executes such orders. It may also depend on your timing; I hear that a lot of brokers experience increased slippage during news periods, when a lot of people are trying to make some quick pips. It might not hurt to shop around and see which brokers are best for fast execution. I’ve even seen talk that some brokers will GUARANTEE their stops. Or maybe that was guaranteed spreads… :confused:

What point is there in it, you ask? I imagine it’s better to stop out after sliding a hundred pips than to get drained straight into a margin call because you didn’t set a stop at all. But that would probably depend on your trading style too. Some people don’t use stops at all, but that sounds crazy to me.

Gee - that was a quick reply - thanks!

The other thing that I should have mentioned is that I read that you use a ‘Stop’ to lock in profits as well.

I tried this this morning and lost which really p****d me off:

Yesterday I had bought ZAR at 7.4055
This morning while I was watching the price went to 7.4500
I then changed the ‘Stop’ from 7.4054 to 7.4499 thinking that if the price changed to anything below 7.4500 the ‘Stop’ would be executed but - guess what - the ‘Stop’ was executed at 7.3891 which again cost me money!!!

My point is that in that again, in the above example, the ‘Stop’ could have been executed at 6.000 or 5.000. No point!!!

Is it the dealer who decides when to execute the ‘Stop’ and at what price?

Regards,

Dale.

Some people (such as Pipcrawler) will trade in multiples of 2 and set a limit order to sell off half their position at the price they wish to ‘lock in’ their profit. That might be why.

I’ve heard some brokers try to get sneaky here to discourage scalping, but I suspect most of that kind of slippage depends more on the backlog of orders. Execution isn’t instantaneous; servers do need time to communicate with each other, and it’s possible for the market to keep moving in the meantime. Again, it will depend on the particular broker in question.

As someone who is still strictly demo trading, I’m speaking from other people’s experience here. Maybe someone who’s been around longer can add more insight into what slows forex trades down sometimes.

My first question would be what was the quoted rate when you changed your stop order to 7.4499?

Second question is what time of day were you doing this?

Third question - if you care to answer - why are you trading USD/ZAR?

Sorry that I am only replying now John - I did not see that you had answered my thread.

Why am I (was I) insistent of trading the USD/ZAR pair? Because I’m an idiot - that’s why.

At this point I think it only fair to direct all readers of my posts in this thread to another thread that I started:

http://www.babypips.com/forums/showthread.php?p=5834#post5834

I’m learning (I think).

Regards,

Dale.

Agree, not using stops at all sounds like leaving yourself wide open to ridiculous amounts of risk!