Duration: 6:38
Level: Beginner

Stop orders may help investors protect profits and cut losses. This lesson helps distinguish between Stop and Stop Limit Order types in TWS Mosaic.

Study Notes:

In this lesson, we’ll walk you through how to set up a Stop and Stop Limit order using TWS Mosaic.

  • We’ll define the objective of the Stop and Stop Limit order type
  • Show you how to create a Stop order in TWS Mosaic
  • Show you where you can locate Stop orders within the Activity panel

TWS Mosaic Stop and Stop Limit orders

Typically, Stop orders help investors get out of an existing position. They are intended to either lock in profits or limit losses. Alternatively, a Stop order can be created to force you, the investor, into a fresh position when a specified price is reached. In this case, you have determined that you either want to go long if prices rise above a specific price or establish a new short position should prices fall below a specified threshold.

For both Stop and Stop Limit orders, the determined stop price serves as a trigger, which will activate the order when penetrated. You should *note, however, that stop orders are not guaranteed to execute.

So, what is the difference between the Stop and Stop Limit order types?

For one, a Stop order becomes marketable and is intended to fill – regardless of price – once the determined trigger price is pierced.

It does not have a specific execution price and may execute significantly away from its Stop price. In that regard, it is not possible to estimate the impact of executing away from the trigger, or Stop price, until the trade has filled.

Meanwhile, a Stop Limit order has the additional component of a limit price associated with the stop price trigger.

While this added element eliminates the price risk associated with the Stop order, it introduces the risk that the order may not fill at all, and that the investor may ‘miss the market’ altogether.

Creating a Stop order in TWS Mosaic

Let’s see how we can create them in TWS.

We’ll focus on the Stop Order first, and we’ll use – for illustrative purposes – a stock ticker in my portfolio with an existing long position.

Once we’ve selected the stock, click on the Sell button. I see that my position in this stock is 100 shares – and I’m going to choose to sell this amount from the Quantity field. Since I want this to be a Stop order, I’m going to specify this using the Order Type dropdown. The menu selection for Stop here is STP. If you don’t see it listed, click on the expand arrow at the bottom of the list.

Now, I’m selling 100 shares of my stock as a Stop Order – that much we’ve established – but *remember, a Stop order becomes marketable and is intended to fill – regardless of price – once the determined trigger price is penetrated. So, we’ll need to determine what that trigger price is.

Since we’re selling these shares, we’ll want to set a price below the prevailing trading price of the security – this is the price at which you want the order to become active. Let’s enter that price in the Price Input field.

When this price is reached, the system will automatically turn the order into a market order and sell until filled.

At this point, you may want to consider how long you want the order to remain open for.

If you leave Day order as the default, the system will cancel the order at the end of the daily session if not triggered; however, if you want, you can also change this setting to GTC, or ‘good-till-cancelled,’ from the time-in-force menu.

Okay, let’s review the order:

I‘m selling 100 shares of my stock as a Stop order, with a set trigger price below the prevailing trading price, and I’ve left the Day order in place. Since I’m satisfied with these details, I’ll go ahead and hit Submit. You’ll see that an Order Preview is generated when I do this. I’m just going to review everything again and am now ready to Transmit the order to the market.

And once I transmit my order, I’ll see it appear on the Orders tab in the Activity window.

Creating a Stop Limit order in TWS Mosaic

Now that we know how to create a Stop order in Mosaic – how about a Stop Limit order?

For the Stop Limit order, you’ll see that the basic order entry is the same, however this time you may want to close a position showing open profits or set a maximum loss on a losing trade.

Let’s go through some steps, we’ll select a stock, click on the Sell button, and select the Position size from the Quantity input field.

Now, when selecting from the Order Type dropdown menu, select the Limit version of the Stop order, which is displayed as STP LMT.

The Order Entry panel now displays the additional input field for Limit as well as the Stop input field we saw in the previous example.

Enter the price, below the prevailing trading price of the security, at which you want the order to become active. If reached, your stop order becomes an order to sell.

However, rather than becoming a market order, you may enter a Limit price below which the order will not execute. In the Limit field, enter this value.

*Remember to change the time-in-force selection if necessary.

Once I review the details and am satisfied, I’ll go ahead and submit the order. TWS will follow with an Order Confirmation, and I’ll ensure here that all the details of my order are as they should be – and if they are, I’ll transmit it.

Locating Stop orders within the Activity panel

Just like we saw with the Stop order, you will see this Stop Limit order appear in the Activity panel below.

Lastly, you do not have to have an open position to use Stop or Stop Limit orders, you may establish fresh long positions using a Buy Stop or new short positions using Sell Stop or Stop Limit orders.

Now that you know how to create a Stop and Stop Limit order in Mosaic, let’s turn our attention to the next lesson on order types in Traders’ Academy.

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Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

Disclosure: Order Types / TWS

The order types available through Interactive Brokers LLC’s Trader Workstation are designed to help you limit your loss and/or lock in a profit. Market conditions and other factors may affect execution. In general, orders guarantee a fill or guarantee a price, but not both. In extreme market conditions, an order may either be executed at a different price than anticipated or may not be filled in the marketplace.