How does the Stop Loss work
Updated on April 10th, 2021
Stop loss is a particular stop order that you can use if you already hold position, in order to limit losses, or to make a Stop & Reverse with a single trade, for example, from + to - 1000 shares of ENI, or from +1 to -1 S&P-Mib future contracts owned, or vice versa.
Stop Loss is directly managed by the Italian Stock Exchange.
The quantity of shares to be traded as the condition occurs has to be specified and may differ from the total of shares held.
It can be paired with a normal closing position order, but the execution of one does not cancel the other.
E.g.: if ENI stock price falls to 23, sell the quantity of specified shares with limit price less than or equal to 23.
If you enter a trigger price equal to the last execution price, the order shall enter into order book immediately, without having to wait for the execution of another contract at the same price (thus it refers to the last price instead of the next price).
NOTE: If the trigger price is reached during the Closing Auction, the stop order will enter into order book only in the next opening day (not in the After Hours.)
It is managed by Directa, who will forward it to the market only when the trigger price is reached.
For the rest, the same procedures indicated for the orderson MTA apply. Please refer to the aforementioned MTA procedures.
U.S. Stock Exchanges (NYSE, NASDAQ, AMEX)
On American Stock Exchange, where Directa does not allow the opening of short positions, the stop loss is the stop order used to limit losses by those who already hold a long position. After the entry, the order is forwarded to the American Market Maker, who manages it on its platform pending for the automatic negotiation (conditional order are not permitted via ECN).
It is necessary to specify the quantity of shares to be traded and the trigger price. The trigger price is mandatory: in its absence the order will be negotiated at market limit.
On OTC market Directa doesn't accept conditional orders
E.g.: if the price of Coca Cola (KO) falls to $ 40, then sell the specified quantity with limit price less than or equal to the trigger price, or At Market.
NOTE: The stop loss on NYSE and NASDAQ are activated if the trigger price is equal to the first bid price (BID) and not to the last execution price: this means, it is not necessary to have already a contract concluded at that price.
E.g.: if the Bid price of Cisco Systems (CSCO) falls to $ 16, then sell the specified quantity at limit price equal to or less than $ 16, or At Market.
The stop loss is managed by the market, the customer can choose between two option: 'valid for today' and 'til date' (30 days).
Regarding the short positions we remind you that Directa allows only intraday short sale.
It is necessary to specify the quantity to be traded and the trigger price.
Limit price is not mandatory: in its absence the order will be negotiated At Market.
E.g.: if the price of Bayer falls to 30 , sell the specified quantity with limit price less than or equal to the trigger price, or At Market.
Futures Markets (IDEM, CME, EUREX)
It is managed directly by the Stock Exchange
The amount of contracts to be traded as the condition occurs have to be specified and may differ from the total of instruments held.
Note: EUREX does not accept limit price: the order will be negotiated At Market with the maximum limits set by the market.
a) if the price of the FTSE Mib Future falls to 34,000 points, sell one or more contract at limit price less than or equal to 34,000;
b) if the price of the E-mini FTSE Future falls to 1,190 points, sell one or more contract at limit price less than or equal to 1,190;
c) if the price of DAX Future falls to 4,800 points, sell one or more contract "At market".
Cboe (ex BATS Europe)
Stop Loss is managed by Directa, who will forward it to the market considering the first level of the book (bid / ask); while in other markets the order is forwarded considering the execution prices.
The average between bid/ask is calculated within one second at any change of the first level in the orders book.
The resulting averages represent the trigger condition, with the following criteria:
- the lowest value will be used as a trigger price for a sale stop loss
- the highest value will be used as a trigger price for a purchase stop loss.
The stop sale order shall be forwarded if in a given momnet, the lowest value among the calculated averages will be equal to or lower than the trigger price.
In the same way a purchase stop order will be forwarded if in a given moment the highest value among the calculated average will be equal to or higher than the trigger price.
Note: To avoid anomaly, the calculation of average values will start after the first minute of trading
An example of variation of the first level of the book within the same second:
|The stop order to SELL will be forwarded when the lowest average (11) is equal to or lower than the trigger price.
|The stop order to BUY will be forwarded when the highest average (14) is equal to or higher than the trigger price.
Forex (LMAX Exchange)
It is managed by LMAX Exchange, valid 'til cancelled. From September the 10th an optional limit price indication is available as well.'.
NB: They are activated if the trigger price is equal to the orders present in the first level of the book (bid/ask)