In terms of automatically becoming market orders when the threshold price is reached, Why does a a stop order automatically become a market order but a limit order does not? I understand the nature of each order. Stop orders are to protect against large losses while limit orders are utilized more to obtain the security at a certain price. However, dont both execute as soon a a threshold is reached? Therefore, shouldnt both "automatically become market orders? Thanks!!
Limit doesn’t automatically gets executed when the price hits the limit. They are executed on first come, first serve basis. Let’s say E-mini S&P contract is trading at 1,147.5 and there is a guy who wants to buy 20 contracts for 1,100. He places a limit order first. Then you want to buy 6 contracts at 1,100. Now let’s say E-mini S&P starts going down and someone sells 25 contracts at 1,100. The guy ahead of you bought his 20 contracts (assuming he was the first in line). You bought 5 contracts and still have a limit order for 1 contract at 1,100 (you got a partial fill). Now if someone else wants to sell E-mini at 1,100, you will get filled. Otherwise, you’d have to live with your partial fill.
OK Thats helpful. Just to confirm that I understand your point: If a stock is at $20 Person X put in a limit order for 50 shares at $18 Person Y put a limit order in for 50 shares at $18 If only 50 shares are being sold, only Person X will get them. However, if Person Y put his limit order for 50 shares at $18.01, he would get the fill first, is that correct? (Assumes that the person selling will take the highest bid correct?) Overall I defintely see your reasoning why limit orders are not automatically market orders, so thanks!!
cheros16 Wrote: > However, if Person Y put his limit order for 50 > shares at $18.01, he would get the fill first, is > that correct? (Assumes that the person selling > will take the highest bid correct?) If person Y is the first in line. Or if the market goes through 18.01 down to 18, you know for sure that your limit order should be filled.