A stop-loss order is an important tool that helps traders like you limit potential losses by automatically executing a trade once the set price is reached. However, various challenges and misconceptions may arise while executing these orders, leading to customer complaints and concerns. In this article, we’ll explore some corner cases related to stop-loss orders and shed light on the complexities involved.
Below are a few execution discrepancies that a trader may face while placing or trading stop-loss orders.
Scenario 1: Order executed, but trigger price not reached
In this situation, the stop-loss order is executed without reaching the trigger price. For instance – the current TCS share price is ₹3000, and the trigger price is set at ₹2900. However, the order was executed at ₹3000, which is not the set trigger price.
Scenario 2: Trigger price reached, but order not executed
The stop-loss order is not executed even though the market price has reached the trigger price in this scenario. For example – the current TCS share price is ₹3000, and the trigger price is set at ₹2900. Let’s say that the market price has now reached ₹2900; however, the order was not executed.
Scenario 3: Order executed, but the execution price is not shown on the charts
Every single order is transmitted to the exchange by the broker in real time, and the data feed with the said trades is known as a Tick-By-Tick (TBT) Feed. However, due to technological constraints and a large number of transactions, it is difficult for a broker to show every single trade executed at the exchange. Thus, at times, traders are not able to see the order execution price on charts. For example – your stop-loss order for TCS share is correctly executed at the trigger price of ₹2900; however, the said is not visible on the charts due to data feed limitations.
Here are the challenges a broker faces in dealing with the above-mentioned discrepancies.
- Stop-loss orders don’t get executed as price hits on lower market values are influenced by various factors such as volatility, trading volume, and counterparty availability
- Unable to fetch the TBT database in real time due to technological limitations and vast data
What can you do in such situations?
Below are a few actions you can take to deal with the above mentioned scenarios.
For Scenario 1 and Scenario 2
- As execution prices are determined by the exchange and not by the broker, you can verify the execution discrepancies by visiting the NSE portal*.
- You should gain insights into the overall market volatility and trading volume of the shares you wish to trade in, along with the availability of counterparties in the market.
For Scenario 3
- To verify the execution price, you can check the NSE Trade Verification Module*, which contains the complete list and details of executed trades.
Conclusion
A stop-loss order is an important tool to control risk; however, traders need to be aware of the inherent challenges in their executions. This article explains the nuances of stop-loss order, influencing factors like volatility and counterparty availability, and the inability to fetch TBT feed in real time. It also encourages you to leverage the tools provided by the exchange to verify your trades and get data in real-time.
