See also post on stop orders…
2 common order types to let you buy at a specified price — A) limit order B) stop loss order
My CFA book made it clear that a Stop-Loss-Buy@$5.55 will become a market order once the offer side “touches” that point (compare binary options!). (Note You use a SLB after you enter a short position at a LOWER price like $4. It fires when market moves against you — up in this case.)
– if best offer remains at that price, then your SLB will (partially) fill right there.
– if that 5.55 offer is wiped out and market deteriorates further to 5.58, and your order gets to head of the market-order-queue, then you execute at that price. You suffer a bit. This is the “
fall-through” scenario. (For our SLB, this is “ break-through”. Anything-through is bad!)
– if market quickly recovers (perhaps offer side gets aggressive) and a LOWER offer is in effect when your order is at head of the queue, then you execute at a BETTER price. This is a touch-and-go scenario.
=== In conclusion, a SL order may execute a bit better/worse than your order price. You can’t control that (but you can quickly send cancels). See http://ibkb.interactivebrokers.com/node/255
In contrast, a regular Limit-Buy order let’s you control the worst case scenario. If you are filled you are always filled at $5.55 or better.
Note the abbreviated terminology. Stop-Buy is a Buy order, for the purpose of stop-loss.
Some (Forex, eq etc) people claim that a SL executes at a worse price than specified. I believe that’s assuming touch-and-go is rare in practice, and fall-through is far more likely.