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Why Do Traders Use Simulated Stop Orders?

simulated stop order futures stocks forex

A simulated stop is a type of conditional trade order which is simulated locally on a trader’s personal computer until certain market conditions are met. Once these user-defined conditions are satisfied, the simulated stop order becomes a market or limit order.

Advantages of Simulated Stop Orders

One of the main advantages of simulated stop orders is the ability to hide your orders from both the exchange and other traders. For example, since the exchange cannot accept a sell limit order below the market price, a trader can use a simulated stop order to trigger a sell limit order at a price below the current market.

Another advantage of simulated stops is the ability to delay the triggering of an order until certain market conditions are met. An example of this would be waiting to place a buy limit order until the price has moved up to a more convincing level.

Additionally, simulated stops allow a trader to place a limit order at an improved price from the simulated stop price trigger. For example, you wish to trigger a buy limit order at 995 but only after the market touches 1000.

Risks Associated with Simulated Stops

Since simulated stop orders are simulated locally on a user’s PC versus being active at the exchange, they are subject to local PC issues such as loss of internet or computer crashes.

In order for simulated stops orders to function properly, a stable and reliable market data feed is required. If market data stops flowing, the simulated stop will stop simulating.

Another drawback is that during high volume and volatile market periods, simulated stops can experience slippage and are generally not recommended.

Understanding the Volume Trigger

A simulated stop order requires a volume trigger value to be configured. Ask or bid volume at the order price must be less than this user-defined value to trigger the simulated stop.

Conversely, this means that if the volume trigger associated with the order is not met, it will not execute. This functionality can play an important role in any volume-based trading strategy.

How to Place a Simulated Stop Order

  1. Right click within the order entry window and click Simulated Order. A green “SO” will appear in the top right corner of the window.

  1. With your middle mouse button, click the desired price cell on the buy or sell side to place the simulated stop. In this example, there was a middle mouse click at 26656 to place a simulated stop buy limit order above the current price.
  2. Enter a number of ticks when prompted. A negative value indicates the number of ticks below the simulated stop level to place the buy limit order. A zero would place the limit order at the exact simulated stop price, and any number one or higher will result in a market order. Since we want to place a buy limit order below the market once the simulated stop is touched, a -5 has been entered.

  1. Once the simulated stop order has been placed, it will appear yellow as seen in the SuperDOM window below.

  1. Once the simulated stop price level is touched, a limit order 5 ticks below the current market price is issued.

  1. If no further simulated stop orders need to be placed, right click and uncheck Simulated Order.

When to Avoid Using Simulated Stop Orders

Please note that during the following market conditions, it is recommended to avoid using simulated stops:

  • High volume and trade rate periods such as the first five minutes after the open
  • Major economic events which substantially increase volatility
  • Markets which consistently trade a large spread between the bid and ask prices
  • Markets where the ask or bid price can consistently change by more than one tick

Learn more about advanced order types including Market if Touched orders in this quick video overview:

Please note: Simulated stops are an advanced order type and can be misused if not fully understood. Traders should always employ risk management methods such as stop market orders when trading live markets.

The award-winning NinjaTrader platform supports both advanced and basic order types. Additionally, NinjaTrader is always free for advanced charting, strategy backtesting and trade simulation. Get started with our free trading simulator and discover the power of NinjaTrader!