A stop-on-quote order is an order to buy or sell a security when the NBBO (National Best Bid-Offer) reaches or surpasses a specified level, or trigger, called a stop price, attempting to limit your loss or locking in your profit. Whenever the bid price (sell orders) or ask price (buy orders) reaches or surpasses the stop price, the stop-on-quote order becomes a market order and is then handled as defined under the definition or a market order. This type of order is also referred to as a "stop-loss order."
These types of orders may be placed with special instructions, like GTC (good 'til canceled). Stops are not a definite guarantee of getting the desired entry/exit points. For instance, if a stock gaps down then your stop-on-quote order will be triggered (or filled) at a price significantly lower than expected. This can happen if bad/good news comes out before market open and the stock opens up well below/above your stop price, for example.
Buy Stop-on-Quote Orders - The stop price is set above the current ASK price.
Sell Stop-on-Quote Orders - The stop price is set below the current BID price.
Depending on market conditions, once the order is triggered, there is no guarantee of the execution price and the price received may be several points away from the stop price.
For this example, unlike the limit order example, we want to sell our position if the price of the stock drops to $30.25. Continuing with the example from the limit order section, that price is lower than the prevailing market bid of $33.56. That's because the stop-on-quote order won't actually trigger until XYZ reaches or surpasses 30.25. Until that time, we still own 10 shares of XYZ. A stop-on-quote order is a protective order that limits our loss from the purchase price.
Like the limit order example, as we build the standard order for a stop-on-quote, we will skip over the details that are similar to the earlier order types and focus on the differences. If you need to review market and limit orders, please see the previous two sections.
1. Click the Trade tab.
2. Choose buy or sell from the first drop-down menu (sell for this example).
3. After selecting Sell and entering the number of shares and the symbol, select Stop-on-Quote from the Order Type drop-down box. As soon as you select Stop-on-Quote, the stop price field is added. It is important to note that for a sell order, the stop price must be lower than the prevailing quote, which in this case a bid $33.58, so our limit order of $30.25 is lower. View Graphic
If we had decided to add to our XYZ position, then we could use a buy stop-on-quote, which would require the price placed in the stop price field to be higher than the prevailing market, in this case an offer of $33.57. In this example, we would only want to buy XYZ if the price reaches or surpasses $36.75. View Graphic
Whenever any stop price is triggered, that order becomes a market order. So, in our example above, if XYZ reaches or surpasses $36.75, then our buy stop-on-quote order is triggered and turned into a market order. This means that you will receive the next available price, which may or may not be $36.75.
4. Back to the sell stop-on-quote example - it's time to set your duration date and time. In addition to a Day and GTC duration, Scottrade has a GTD - Good 'til Date duration. This duration allows us to pick our day and time when we would like the order to cancel, up to 90 calendar days in the future. In the example below, we clicked on the calendar and selected May 7 as our Good Till Date.
Next, the pull-down menu allows us to pick the time of day that we want the order to cancel by the half hour, in this case 4 p.m. ET.
5. Finally, we have all of our fields selected, and we are ready to review our order.
6. You are now ready to click the Review Order button and place your trade.
Stop-on-quote orders must be placed at least .10 below the current bid or above the current ask.
Scottrade has established this guideline due to the possibility of the order being invalid if the market price moves below the designated sell stop price or above the buy stop price.
Note: Scottrade does not accept stop-on-quote orders on Bulletin Board/Pink Sheet stocks, although stop-limit-on-quote orders may be placed through a broker at the broker-assisted commission rate.
Watch Trading and Account Management in the Trading Website to see a demonstration of how to place a stock order and complete other tasks in the Scottrade Trading Website. To learn more about using different order types to enhance your trading, watch the Understanding Basic and Advanced Orders event recording.