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Exactly how are Limit and MIT orders triggered?


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Exactly how are Limit and MIT orders triggered?

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  #1 (permalink)
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I know this sounds like a rudimentary question, but there are some subtleties that I'm still trying to get straight on.

Do limit orders execute when the price is exceeded or when the price is touched?

For example, suppose we place a limit order near the close of a session, it does not execute before the close. Then at the open of the next session, the limit price is exceeded. Assuming sufficient liquidity, will the limit order execute immediately?

And at what price? Will it execute at the price of the closest matching order on the book? Will I always get the least favorable price that still satisfies my limit price?

Are Market-If-Touched orders triggered in exactly the same way as limit orders, except that once triggered, they fill as market orders?

Thanks,

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Barz View Post
I know this sounds like a rudimentary question, but there are some subtleties that I'm still trying to get straight on.

Do limit orders execute when the price is exceeded or when the price is touched?

For example, suppose we place a limit order near the close of a session, it does not execute before the close. Then at the open of the next session, the limit price is exceeded. Assuming sufficient liquidity, will the limit order execute immediately?

And at what price? Will it execute at the price of the closest matching order on the book? Will I always get the least favorable price that still satisfies my limit price?

Are Market-If-Touched orders triggered in exactly the same way as limit orders, except that once triggered, they fill as market orders?

Thanks,

See here for a description of limit orders.

And no, MIT orders are not triggered in exactly the same way. They are triggered in a way similar to stop orders.

See here for a definition of MIT orders: https://www.investopedia.com/terms/m/marketiftouched.asp

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  #4 (permalink)
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xplorer View Post
See here for a description of limit orders.

And no, MIT orders are not triggered in exactly the same way. They are triggered in a way similar to stop orders.

See here for a definition of MIT orders: https://www.investopedia.com/terms/m/marketiftouched.asp

Thanks for the reply, xplorer. However, those links don't address my questions.

Let me see if I can be more clear by using concrete examples.

Example 1)

Let's say that a daily bar has a closing price of $100.

I decide that I want to enter a long position if the price drops to $95. I enter a MIT buy order while the market is closed, before the next open.

The market gaps and the open price is $90.

Will the order execute immediately at the market price of $90 because my MIT target price of $95 was exceeded?

Or does a MIT order want to actually touch the price? And therefore, as the new bar develops and the price goes back up to $95, the order executes only when the price actually touches $95?

Example 2)

This is the same, but for a limit order.

A bar closes at $100. I enter a buy limit order with a limit price of $95. The market gaps and opens at $90.

Now the limit order is triggered because it will execute with any fill price of $95 or better (lower).

But because there are orders on the book saying they are willing to sell at $95 and my limit price is $95, then I won't get the current market price of $90, right?! I'll actually get filled at $95. Is this true?

Or could I get filled closer to the market price because ALL executions must happen at whatever is the current market price?? Assuming the limit order price is still satisfied.

I know this will depend to some degree on liquidity, but for the purposes of this question, let's assume a highly liquid instrument with a deep order book such that there a plenty of sell orders at all prices willing to take the other side of my orders.

Thanks,

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Barz View Post
Let me see if I can be more clear by using concrete examples.

Never used either order type in gap situations so I'm unable to answer that scenario.

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  #6 (permalink)
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The short version:

With a limit order you get the price that you want (or better) but not necessarily the quantity.
With a market-if-touched order you get the quantity that you want but not necessarily the wanted price (better/worse).

In your $100/$95/$90 example - assuming a buy quantity of 1000 - that means:

Limit order:
As soon as $95 is reached you get the quantity that is available at that level.
If the quantity is below 1000 (e.g. 300) and the price never looks back, you will remain with a partial fill of 300.
If the price gaps down below $95, you get the quantity at your limit and below, but normally your average fill
with be far too high since fresh sellers (e.g. market makers) will sell at your initial bid rather than letting this free lunch pass.
(I.e.: You are the one that makes the gap smaller than it would presumably be without you.)

MIT:
As soon as the limit is touched, you will be filled at market at the best price available for your desired quantity.
Reason 1 why your fill normally won't be $90.
Reason 2: The next price after the touch can be higher or lower than $95 (during a session as well as after session gaps).

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it also depends what exchange we're talking about (nyse, nasdaq etc). I assume this is about an auction market.

example 2 (limit order):

- the market closed at $100
- before the open you put in an order to buy 1000 at $95
- the market opens at $90

in this case you bought 1000 at $90.

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So, is a MIT order triggered if the MIT price has been met or exceeded OR only if the price is actually touched.

You can enter a MIT order on the wrong side of the market such that the MIT price is already exceeded.

Does market price have to move to actually touch the MIT price before it's triggered? Or is it instantly triggered because the target price was met or exceeded.

A similar scenario can occur if the market price gaps past your MIT price.

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Barz View Post
So, is a MIT order triggered if the MIT price has been met or exceeded OR only if the price is actually touched.

You can enter a MIT order on the wrong side of the market such that the MIT price is already exceeded.

Does market price have to move to actually touch the MIT price before it's triggered? Or is it instantly triggered because the target price was met or exceeded.

A similar scenario can occur if the market price gaps past your MIT price.

General rule: No touch, no fill - just as the name says.
Why "general"? With the exception of stocks and ETFs, MIT orders are only held with your broker
and their trigger algorithm until the price is touched. Moreover, brokers like IB also reserve the
right to simulate the following market order (which many traders ignore until they wonder about
the first fill that's somewhat "off").

So chances for buy orders are that your fill will happen on the way up after a down gap.

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