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Investing Essentials

SEBI Discontinues Stop Loss Market Order, How to Use Stop Loss Orders

27 Sep , 2021   By : Nayan Singhal


SEBI Discontinues Stop Loss Market Order, How to Use Stop Loss Orders

How to Use Stop Loss Orders Now?

 

After SEBI Circular for discontinuing of Stop Loss Market Orders for Options, traders are looking out for a safer alternative to place trades for executions. Here we will explain the alternative order type which is known as Stop Loss Limit (SL – L) Order in details.

 

What Is a Stop Loss Limit Order?

 

Stop Loss Limit (SL – L) Order is the immediate replacement for Stop Loss Market (SL –M) Order type which is safer & restricts any kind of freak trades. In this order you can place buy above, sell below & stop loss for your option trades.

 

Stop Loss Limit (SL – L) Buy above Order Explained Below:-

In this tutorial let us consider TECHM 1460PE with LTP 16.40 as a sample trade call. Now you may want to buy this option PE once it reaches above 17.00, hence you need to follow the below mentioned order fields in order for a perfect execution of the OPTION PE order.

 

Quantity – Lot Multiples / Lot Size (TechM – 600qty LOT SIZE)

Price – 17.50 – This denotes the upper limit of order execution when the option moves to a premium of 17.05. What it means is that once the option premium hits 17.05 LTP this order will be placed with the exchange for execution & you will get 1 Lot of the option at the available price which will not be more than 17.50. Hence your buy price for the option will be in between 17.05 to 17.50 only.

Trigger Price – 17.05 – This denotes the price you want your order to execute with the exchange, in simple terms once the option reaches a premium of 17.05 your order will be automatically placed with the exchange.

 

Stop Loss Limit (SL – L) / Stop Loss Trade Order Explained Below:-

Now let us discuss what happens post the above order execution around 17.05 for TechM 1460PE. Let us suppose post your order execution you intend to limit your losses against any reversed movement & you decide to maintain a stop loss around 14.00.

Below is how you should place a stop loss order for your trade.

Trigger Price – This now denotes the maximum price / premium you want to risk your trade with, for this case we have considered 14.00 as our stop loss limit. Which now means is once the Option PE slides down to 14 this order will be automatically sent to the exchange for execution. Now depending on the execution price you have mentioned as in this case 13, this option sell will be executed anywhere between 14.00 to 13.00 depending on available buyers.

Price – 13.00 – This now denotes the lower limit of order execution when the option moves to its trigger premium of 14.0, as in this case of sample trading.

 

 

Both pictures represents the order setup screen from Upstox APP, you can also apply for your free demat account with Upstox which comes with several list of benefits for intraday traders.

 

The above example should only be considered for learning purpose & author do not suggest anyone to place live trades with the mentioned sample above.

 

3 Comment


Vikeam2021-09-27

Very informative Thank you

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Rami2021-09-27

Gud one

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Raj Misrhra892021-10-02

Thanks for this info to GM team

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