In this article:
Overview
A stop market order is an order type that automatically converts to a market order once the order reaches your specified "stop price." This means your order will execute immediately at the best available price in the market.
Stop market orders are available for both CAD and US stocks and ETFs (equities), and you can place a stop market order at any time. Keep in mind that your order will only execute during regular market hours.
How stop market orders work
Unlike stop limit orders, you don't need to set both a stop price and a limit price. This simplifies the order process and can help ensure your trade executes, even in volatile markets.
Let's look at how stop market orders work for both buys and sells below.
Understanding stop market buys
A stop market buy order activates when the stock's price rises to or above your chosen stop price. Once triggered, it becomes a market order and attempts to buy the shares immediately at the current market price.
Understanding stop market sells
A stop market sell order activates when the stock's price falls to or below your chosen stop price. Once triggered, it becomes a market order and attempts to sell your shares immediately at the current market price. Stop market sells are often used to help limit potential losses.
Important considerations
- No price control: Once a stop market order triggers, it executes at the current market price. In fast-moving or volatile markets, the execution price could be significantly different from your stop price. Your proceeds could be substantially less than expected for a sell, and you could pay more than you expected for a buy (possibly causing a delinquency for which you’re solely responsible for).
- Equity trading only: Currently, stop market orders are only available for equity trading. They aren't supported for cryptocurrencies or options at this time.
Frequently asked questions
How does a stop market order differ from a stop limit order?
The key difference is what happens after the stop price is triggered:
- With a stop market order, your order executes at the current market price, guaranteeing execution (except for a halt or other market condition that prevents trading), but not at a specific price.
- With a stop limit order, it becomes a limit order that will only execute at your specified limit price or better, providing price control but not guaranteeing execution.
What happens if I place a stop market order and the stock price drops sharply before the market opens or reopens after a trading halt?
If the stock opens significantly below your stop price (due to news or other events overnight), your order will trigger immediately at market open and execute at the current market price. This could be much lower than your stop price, which is known as "slippage."
What happens if I place a stop market order and the stock price surges before the market opens or reopens after a trading halt?
Due to overnight news and events, the price of a stock may open higher than your stop price. If the stock opens higher than your stop price, your order will trigger and execute at the current market price. It’s important to keep in mind that it’s your responsibility to ensure that you have sufficient funds in your account to complete an order.
Is there any price protection with stop market orders?
No. Once triggered, a stop market order executes at whatever the current market price is. In fast-moving or volatile markets, this could result in an execution price significantly different from your stop price.
When would I use a stop market order instead of a stop limit order?
You might choose a stop market order when your priority is ensuring the trade executes once your stop price is reached, even if it means accepting the current market price. This is particularly useful in volatile markets where prices might move quickly past a limit price, leaving a stop limit order unfilled.
Can I cancel a stop market order?
Yes, you can cancel a stop market order any time before it's triggered. Once triggered and converted to a market order, it typically executes quickly, and you can't cancel it.
I placed a stop market order during extended/overnight trading. Why isn't it executing?
Stop market orders will only trigger and execute during regular market hours. If you placed a stop market order during extended or overnight hours, it will remain pending until the market opens. You may cancel your order before the market opens.
Why don't I see the stop market order option for crypto or options trading?
Stop market orders are currently only available for trading stocks and ETFs (equities). We don't support them for cryptocurrencies or options at this time. We're working on making this feature available for additional asset classes in the future.
Comments
0 comments
Article is closed for comments.