Difference Between Stop On Quote And Stop Limit On Quote
If you are new to the stock market and want to learn about different types of orders that you can use while trading, then you have come to the right place. Two common types of orders that traders use are Stop on Quote and Stop Limit on Quote. While both of these orders are used to manage risk, they have different functionalities. In this article, we will discuss the difference between Stop on Quote and Stop Limit on Quote, and how you can use them to make profitable trades.
What is Stop on Quote?
Stop on Quote is a type of order that is used to buy or sell a stock at the market price when the stock reaches a certain price level. When you place a Stop on Quote order, you specify a trigger price, which is the price at which the order will be activated. When the stock reaches the trigger price, the order is executed at the next available market price.
For example, if you own a stock that is currently trading at $50 and you want to sell it if the price drops to $45, you can place a Stop on Quote order with a trigger price of $45. If the stock price drops to $45, your order will be automatically executed and sold at the next available market price.
What is Stop Limit on Quote?
Stop Limit on Quote is another type of order that is used to buy or sell a stock at a specified price or better when the stock reaches a certain price level. When you place a Stop Limit on Quote order, you specify a trigger price and a limit price. The trigger price is the price at which the order will be activated, and the limit price is the maximum price that you are willing to pay to buy or the minimum price that you are willing to sell the stock for.
For example, if you want to buy a stock that is currently trading at $50 and you want to buy it if the price goes up to $55, you can place a Stop Limit on Quote order with a trigger price of $55 and a limit price of $56. If the stock price reaches $55, your order will be activated, and you will buy the stock at a price of $56 or lower.
Key Differences between Stop on Quote and Stop Limit on Quote
Now that we have discussed what Stop on Quote and Stop Limit on Quote orders are let's talk about the key differences between them:
- The main difference between Stop on Quote and Stop Limit on Quote orders is the way they are executed. Stop on Quote orders are executed at the next available market price, while Stop Limit on Quote orders are executed at a specified limit price or better.
- Stop on Quote orders offer no protection against slippage, whereas Stop Limit on Quote orders do.
- Stop on Quote orders are more suitable for short-term traders who are looking to quickly exit a position, whereas Stop Limit on Quote orders are more suitable for long-term traders who are looking to buy or sell at a specific price point.
- Stop on Quote orders are more likely to be triggered, whereas Stop Limit on Quote orders are less likely to be triggered.
Conclusion
Both Stop on Quote and Stop Limit on Quote orders are useful tools for managing risk in the stock market. Stop on Quote orders are suitable for traders who want to quickly exit a position, while Stop Limit on Quote orders are suitable for traders who want to buy or sell at a specific price point. It's important to understand the differences between these two types of orders and how to use them to make profitable trades.