Buyer for Every Seller?

[SIUYA 11]

This is like the Abbot and Costello routine...

maybe one of you guys had better give up trading....or better still trade with each other and the one who ends with the most money is right.

[gregn 10]

I feel like we are speaking different languages here. If I go out and to the /ES. Price is at 1100. We got asks at 1100, 1100.25, 1100.50 and 1100.75. And someone has a stop loss at 300 to sell. If I do a market buy, by your definition, I should get filled at 300 by your logic.

[joshdance 10]

I feel like we are speaking different languages here. If I go out and to the /ES. Price is at 1100. We got asks at 1100, 1100.25, 1100.50 and 1100.75. And someone has a stop loss at 300 to sell. If I do a market buy, by your definition, I should get filled at 300 by your logic.

 

You're confusing stop orders and limit orders.

 

A simplistic but generally accurate explanation of orders:

 

- a sell stop at X says "when the last price trades to X or lower, sell at the market". This means most sell stops are placed below the current market price (which is why your protective stop loss is below your price when you are long, and why you place a sell stop below the market price to enter on a breakout to the downside).

- a buy stop at X says "when the last price trades to X or higher, buy at the market". This means most buy stops are placed above the current market price (which is why your protective stop loss is above your price when you are short, and why you place a buy stop above the market price to enter on a breakout to the upside).

- a sell limit at X says "sell at X or higher". This means most sell limits are placed above the current market price (which is why your take profit order when you are long is above the current price, and why you place a sell limit above the market price to sell when price reaches that level)

- a buy limit at X says "buy at X or lower". This means most buy limits are placed below the current market price (which is why your take profit order when you are short is below the current price, and why you place a buy limit below the market price to buy when price reaches that level)

 

A stop loss at 300 is likely not even known to the exchange. It's likely on your broker's order servers, or in some cases even just a simulated order on your software.

 

A sell stop order placed at 300 in your scenario says, "when the last price trades at or below 300, sell at the market." So, your sell stop at 300 will sit there at your broker, and if executed, will be matched to the best bid (which was placed as a "buy limit" order). A stop market order is a MARKET ORDER, not a LIMIT. Reread this section I wrote:

 

Thus, a market buy (created when you click "Buy market" or when you use a "stop market" order) is matched to the lowest offer in the order book, specifically the first order in the queue at that price.

 

A sell stop market will be matched to the best (highest) bid. The order book contains bids and offers, and your stop loss is matched to one of these. So, in your scenario, a market buy will be matched to the best OFFER (your 300 sell stop is not an offer), which is 1100.

[opportunist 10]

Let's take a situation:

 

I want to buy 100 Microsoft shares. Let's say current going rate is 40 dollars per share. I find only one guy ready to sell at 40 dollars but has only 50 shares . I know there are others who have it but wont sell at 40. Why? They want to sell at higher prices or they are just plain lazy. Whatever but I am desperate to buy. Why ? Because my analyst says there is a chance that Microsoft may acquire Google http://cdn.traderslaboratory.com/forums/images/FH_Sahm/smilies/custom2/laugh.gif. So I raise the offer price to 41 dollars. Immediately I find 2 more guys offering 10 shares each. OK so I bought 70 shares for 2820 dollars @ average 40.28 dollars per share. But I am still short of 30 shares ! Now I raise the offer price to 42 dollars. My order gets filled. So finally I spent 4080 dollars to buy 100 Microsoft shares. That is on an average 40.8 dollars a share.

 

This whole chain of events happens millions of times on an exchange in seconds and that is how we see prices jump up and down. When some analysts give a buy signal on a stock there will be some analysts who will contradict. Whichever group wins the vote tilts the price that way.

 

I hope that really satisfies the query.

[gregn 10]

I'm not sure you're clear on how orders work. A buy market can not cause price to move down.

 

A bid is a resting limit order to buy. A seller places a market sell order, and this is matched to a resting bid. Either you're very confused, or your terminology is incorrect.

 

 

Okay, so last traded price was 1000, resting offers are 10 at 900, 10 at 800. You do a buy market of 20, you get filled 10 at 800 first, then 10 at 900, so you're long 20 contracts at an average price of 850. Last price will now be 900.

 

 

Before a buy order could not cause price to go down -- now it can. I do not think you have the mechanics of the market as well understood as you think you do.

[joshdance 10]

Before a buy order could not cause price to go down -- now it can. I do not think you have the mechanics of the market as well understood as you think you do.

 

Greg, good point--I was thinking in the context of typical market scenarios, where it's very uncommon except in illiquid situations (like globex oil trading for example) for offers and bids to shift such that the last price traded is above the best offer or below the best bid. I took a screen shot of this last night on my DOM because I thought I might use it in this thread, and I've attached it.

 

At any rate, I'm done trying to help you. Instead of thanking people for trying to help you understand basic things, like the difference between a sell stop and a sell limit, you use an off-the-wall scenario to show that I was wrong on one point--good catch though, I'm glad you pointed it out. Good luck in your trading, whenever you decide to begin.

[gregn 10]

Greg, good point--I was thinking in the context of typical market scenarios, where it's very uncommon except in illiquid situations (like globex oil trading for example) for offers and bids to shift such that the last price traded is above the best offer or below the best bid. I took a screen shot of this last night on my DOM because I thought I might use it in this thread, and I've attached it.

 

At any rate, I'm done trying to help you. Instead of thanking people for trying to help you understand basic things, like the difference between a sell stop and a sell limit, you use an off-the-wall scenario to show that I was wrong on one point--good catch though, I'm glad you pointed it out. Good luck in your trading, whenever you decide to begin.

 

The problem was that you initially were responding to my non-real life scenario with real life scenarios. My most recent postwhich restarted this thread included that I am programming a simulator and I gave specific scenarios. I was told that I did not understand the market by you.

[jzw 10]

The order book consists only of limit orders. Buy limit orders below the current price and sell limit orders above the current price. These limit orders wait passively to be matched against market orders. Limit orders do not move the current price only market orders do.

 

There can't be any sell offers below the current price because they would fill immediately at the current price (not at their stated limit price which would be worse).

[gregn 10]

There can't be any sell offers below the current price because they would fill immediately at the current price (not at their stated limit price which would be worse).

 

A stop is also a limit order.

[joshdance 10]

The order book consists only of limit orders. Buy limit orders below the current price and sell limit orders above the current price. These limit orders wait passively to be matched against market orders. Limit orders do not move the current price only market orders do.

 

There can't be any sell offers below the current price because they would fill immediately at the current price (not at their stated limit price which would be worse).

 

If by "current price" you mean "last traded price," you're almost correct but not quite. Buy limit orders must be below the lowest offer, and sell limit orders must be above the highest bid. In normal market conditions, it will be the case that the highest bid will be below the last traded price, but not always. See the screen shot two posts above yours of my DOM. The bid at .27 is above the last traded price.

[joshdance 10]

A stop is also a limit order.

 

Not by the definition of 95% of traders out there, and not according to the SEC:

 

Limit Orders

 

A stop order is executed at the market, and this does not fit the definition of a limit order ("at a specific price or better").

[gregn 10]

At any rate, I'm done trying to help you. Instead of thanking people for trying to help you understand basic things, like the difference between a sell stop and a sell limit..

 

Josh, I apologize for coming off as an a-hole. I have a pretty firm grasp on the market, I was not asking for basics, I am asking about the actual mechanics of order execution aside from normal market conditions. As I have stated before, I am writing a market simulator in C#, I am not trying to get a basic grasp on the market.

[joshdance 10]

I am writing a market simulator in C#, I am not trying to get a basic grasp on the market.

 

I fully understand greg--but you said that a stop order is a type of limit order, and by general definition it is not, as it is not guaranteed to be executed at a specific price or better, as is a limit order.

[gregn 10]

I fully understand greg--but you said that a stop order is a type of limit order, and by general definition it is not, as it is not guaranteed to be executed at a specific price or better, as is a limit order.

 

There are stop market and stop limit orders.

[joshdance 10]

There are stop market and stop limit orders.

 

Duh, but a stop market is not a limit order. A stop limit is a different type of order than a "stop order." It's a "stop limit order."

[gregn 10]

Duh, but a stop market is not a limit order. A stop limit is a different type of order than a "stop order." It's a "stop limit order."

 

I never said that it was -- when I gave my scenarios I wasn't giving specific order types -- I said 'sell order' or 'buy order' the type of order doesn't matter to me, just the direction.

[joshdance 10]

You said this:

 

 

A stop is also a limit order.

 

 

Which is not correct. A stop is NOT also a limit order. A "stop" triggers when the market trades at a certain price or higher (buy stop), or a certain price and lower (sell stop). It is NOT a limit order.

[gregn 10]

You said this:

 

 

 

 

 

Which is not correct. A stop is NOT also a limit order. A "stop" triggers when the market trades at a certain price or higher (buy stop), or a certain price and lower (sell stop). It is NOT a limit order.

 

Forgive me, I wasn't paying attention because the order type didn't and still doesn't matter to me in regards to my question.

[jzw 10]

I never said that it was -- when I gave my scenarios I wasn't giving specific order types -- I said 'sell order' or 'buy order' the type of order doesn't matter to me, just the direction.

 

There is no such thing as a sell order.

 

So you have 6 primitive types - buy market, sell market, buy limit, sell limit & buy stop, sell stop. [some exchanges support other types]

[gregn 10]

There is no such thing as a sell order.

 

So you have 6 primitive types - buy market, sell market, buy limit, sell limit & buy stop, sell stop. [some exchanges support other types]

 

 

Thank you JZW. I did not know that until this very second, I have a greater grasp over the market.

[jzw 10]

Thank you JZW. I did not know that until this very second, I have a greater grasp over the market.

 

great - hopefully the other replies on this thread make more sense now.