Stop Order Confusion

Hi, I am a bit confused as to how exactly these [B]stop orders[/B] work. I thought I had them figured out a long time ago, but now I’m not so sure.

My understanding is that stop orders can be used as entry orders to enter a position if the price begins moving in your desired direction, or they can be used to close out an existing position (used as a stop loss) if the price moves too far in the undesired direction.

For example, if I were to have no open positions and wish to enter LONG on EUR/USD when the price moves up by 10 pips, with the current market price being 1.4700, then I set the stop for [B]1.4710[/B] and click buy, correct?

However, I am confused as to when exactly the order would get fulfilled. Does the price have to actually [I]touch[/I] 1.4710 for the order to be triggered? What if the price moves past 1.4710 without ever hitting it and keeps moving up, or if it bounces back and forth [I]around[/I] 1.4710 without ever hitting it? What happens then to the open order?

Also, hypothetically, what if you were to enter a [B]lower[/B] value for the stop price? For instance, using the last example (going LONG), what if you entered [B]1.4690[/B] when the market is currently at [B]1.4700[/B]? Would the order still get fulfilled if the price moved [I]down[/I] to 1.4690 instead of up, even though that would then be the same as a [I]limit[/I] order?

Because I’m currently trying to set Stop+TrailingStop orders right now ([I]stop[/I] to take care of entry, [I]trailing stop[/I] to take care of exit) and they aren’t going into effect correctly. Don’t know if my understanding of stop orders is correct or not.

Thank you!

You are correct. A sell stop is an order to sell that is placed below the current market price, and vice versa for a buy stop.

However, I am confused as to when exactly the order would get fulfilled. Does the price have to actually [I]touch[/I] 1.4710 for the order to be triggered?

Generally speaking, a stop order is executed when the market price goes to or through.

Also, hypothetically, what if you were to enter a [B]lower[/B] value for the stop price? For instance, using the last example (going LONG), what if you entered [B]1.4690[/B] when the market is currently at [B]1.4700[/B]? Would the order still get fulfilled if the price moved [I]down[/I] to 1.4690 instead of up, even though that would then be the same as a [I]limit[/I] order?

Most likely your broker’s system would reject that kind of order entry.

Great, thanks for the reply!

I believe then that I set my entry orders correctly. Must have been a glitch in the demo environment.

Hello,

I believe that this thread (that I started some time ago) will address some of your issues:

http://forums.babypips.com/newbie-island/18293-stops-slippage-brokers-everything-else-confuse.html

Regards,

Dale.