How to use Stoploss-limit(SL) order like a Stoploss-Market(SLM) order?
Slip Trade happens when an execution takes place significantly away from the current market price. This usually results from shallow market depth and low liquidity. Another factor contributing to a slip trade is when a trade coincides with a large market order.
Placing a market order inherently carries the risk of potential losses due to a slip trade,
Limit order provides the advantage of price execution at a specified level, thus avoiding a slip trade but without a guarantee of order fill. However, combining the benefits of both order types is possible, allowing for the price protection offered by a limit order (eliminating the risk of a slip trade) while still enjoying the order fill guarantee typically associated with a market order.
How can I use a Stoploss limit order as a Stoploss market order?
A Stoploss order involves specifying a trigger price, leading to the placement of either a limit order or market order, set within the exchange system, not the broker systems.
Similar to using a limit order as a market order, the SL – L (stop loss limit) order can also be used as an SL-M (stop loss market) order. To do this, a limit price needs to be provided, which is higher or lower than the trigger price, depending on whether the intention is to buy or sell.
Example Scenario:
Stock: Reliance
Position: Short
Short Price: ₹2244
CMP: ₹2242
SL Trigger: ₹2247
SL Limit: ₹2259
In this scenario, the SL limit buy order at ₹2259 will be placed as soon as the market price reaches the SL trigger price of ₹2247. The limit price essentially functions as a market order and gets filled within the range of ₹2247 and ₹2259, offering protection against a slip trade.
How does a SL sell limit order function below the current market price?
When a SL sell limit order is placed with a price below the current market price, the SL limit order will function as an SL market order.
Example Scenario:
Assume a long position is held on Nifty 18500 CE with a current price of ₹186.
A SL limit sell order is placed at: ₹171, triggered at ₹181.
Given the current market price of ₹186 and the placement of the SL limit sell order at a lower price, the order will function as a market order and execute immediately. All available quantities will be sold for up to ₹171. The limit order ensures protection against adverse price fluctuations by restricting the sell price to ₹171.