A stop order, also referred to as a stop-loss order, is an order to buy or sell a security once the price of the security reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order. A buy stop order is entered at a stop price above the current market.
A stop-limit order is an order to buy or sell a security that combines the features of a stop order and a limit order. Once the stop price is reached, a stop-limit order becomes a limit that will be executed at a specified price (or better).
A limit order is an order to buy or sell a security at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. The limit order is not guaranteed to execute.
Specific Risk Warning
Stop Prices are not guaranteed execution prices.
- A stop order becomes a market order to buy (or sell) when a transaction, or quoted data point, occurs at or above (below) the stop price.
- Execution venues are required to execute a market order fully and promptly at the current market price.
- The price at which a stop order ultimately is executed may be very different from the customer stop price.
- While a customer may receive a prompt execution of a stop order that becomes a market order, during volatile market conditions the execution may be at a significantly different price from the stop price if the market is moving rapidly.
Stop Orders may be triggered by a short-lived, dramatic price change.
- During periods of volatile market conditions, the price of a stock can move significantly in a short period of time and trigger an execution of a stop order (and the stock may later resume trading at its prior price level).
- If a stop order is triggered under these circumstances, the security may be traded at an undesirable price even though the price of the stock may stabilize during the same trading day.
- Stop orders are especially at risk of delivering an execution away from the prevailing national best bid or offer (“NBBO”) quotation during the regular market open near 9:30 am ET.
Sell Stop Orders may exacerbate price declines during times of extreme volatility.
- The activation of sell stop orders may add downward price pressure on a security
- If triggered during a precipitous price decline, a sell stop order also is more likely to result in an execution well below the stop price.
Placing a Limit Price on a Stop Order may help manage some of these risks.
- A stop order with a limit price (a “stop limit order”) becomes a limit order when a transaction occurs at, or above (below), the customer stop price and at or within the prevailing national best bid or offer (“NBBO”) quotation. A limit order is an order to buy or sell a security at a specified price or better.
- By using a stop limit order instead of a regular stop order, a customer will receive additional certainty with respect to the price received for the stock although there is the possibility that the order will not be executed at all.
Stop activation conditions for Equity and ETF securities
Equity and ETF stop orders are triggered based on the Last Trade price and are released to the market as a market or limit order depending on the stop order type.
- A Buy stop order will be released to the market when the Last Trade price is equal to or above the order stop price.
- A Sell stop order will be released to the market when the Last Trade price is equal to or below the order stop price.
Stop activation conditions for Options
Option stop order activation triggers are based on a combination of the Bid and Ask prices as well as a calculation of the Bid / Ask Spread Tolerance as follows:
- If the average of the bid and ask for the option is less than $5.00, the spread between the bid and ask must be $0.50 or less (“Spread Tolerance”) for the order to be released to the market.
- If the average of the bid and ask for the option is greater than $5.00, the spread between the bid and ask must be less than 10% of the bid /ask average (“Spread Tolerance”) for the order to be immediately released to the market.
If the Spread Tolerance is greater than the criteria ($0.50 or 10%) as described, the order is not released to the market and the Spread Tolerance is recalculated every time a quote update occurs within a 30 second period (“Review Period”). If the Spread Tolerance narrows to less than the criteria ($0.50 or 10%) within the Review Period, the order is released to the market. If the spread does not narrow to less than the criteria ($0.50 or 10%) within the Review Period, the order will be released to the market after the Review Period expires.
The Spread Tolerance criteria that the order is being evaluated against may change from either the fixed $0.50 to the 10% spread calculation if the midpoint of the option quote changes during the Review Period.
If the option quote improves compared to the stop price during the Review Period, the Review Period will end and the order will remain an open order.
Buy stops on options will be triggered if the ASK price is at or above the stop price AND the option quotes fall within the Bid / Ask spread tolerance described above.
Sell stops on options will be triggered if the BID price is at or below the stop price AND the option quotes fall within the Bid / Ask spread tolerance described above.
Investment Products Are:
- Not Insured by the FDIC or any Federal Government Agency
- Not a Deposit or Other Obligation of, or Guaranteed by, the Bank or Any Bank Affiliate
- Subject to Investment Risks, Including Possible Loss of the Principal Amount Invested