What your orders do not protect you from

An instruction, not a guarantee 

A market closes on a Friday at one price and reopens on a Sunday evening at another, and the two are not adjacent. Somewhere between them sits a sell stop written on the Thursday. Nothing transacted at that level, because nothing transacted at all in the interval: the level was crossed by the reopening rather than by prices moving through it. The order then does exactly what it was written to do. It activates on the first price that reaches or passes the level and transacts at the best price then available, which is the reopening price. Nothing in the pending list behaved incorrectly, and there was nothing inside the order that could have closed the distance.

An order is an instruction addressed to a venue. It states what is to happen and under which condition, and it binds the party receiving it to act when that condition is met. It binds nothing else. A guarantee would be a statement about what the market will offer, and no venue makes one for free, because honouring it means standing in for a price that never existed and absorbing the difference. That is why the one order type that does guarantee its level is a separately priced product rather than a setting. Every order type in this module names a condition. None names an outcome.

The conditions in which a level is not the fill 

A fill away from a resting level is not random. It concentrates in a few identifiable conditions, and what they share is either that the quantity available near the level is small relative to what the order needs, or that the price is travelling further between one quote and the next than the increments the instrument is normally quoted in.

• The reopening of a market that has been closed. A weekend, an overnight break, a public holiday. The first price on reopening is the first price anyone is willing to transact at, and nothing requires it to sit near the last.
• A scheduled release. An interest rate decision, an inflation print, a company reporting its results. At the instant the number becomes public, quotes can move several increments between one and the next.
• A thin book. Where little quantity rests near the top of a market, an ordinary sized order consumes what is there and fills the remainder further away. Thin conditions are common late in a session, on a lightly traded instrument, and around a holiday in the market that prices it.
• An unscheduled event, where nothing is published in advance and nothing about the timing is knowable until after the price has moved.
• Size relative to depth. An order that transacts at a single price in a small size can span several prices in a large one, because it exhausts the quantity at each level as it goes. That condition belongs to the order, not the market.

Three of those are visible in advance, on a calendar or in the contract specifications, and two are not, so any list a reader could prepare against is incomplete by construction. That is why the statement below is worded as a statement about the activity rather than about a market state.

A market that is closed 

A position stays open through a closed market. The exposure does not pause, because the thing the contract is written on carries on being repriced by events while no venue is quoting it. What pauses is the ability to act: a resting order cannot activate where nothing trades, a market order cannot be sent, and a position can be neither modified nor closed. For the length of the close an account holds an exposure it cannot alter, and the first opportunity to alter it arrives at the reopening price. A level written between the closing and reopening prices is never reached, and it is simply behind the market once quoting resumes.

Every instrument has its own calendar and the calendars do not agree. A currency pair is quoted continuously through the trading week and stops over the weekend. A contract written on a share stops whenever the exchange behind it closes, which is most of every day as well as the whole weekend, and again on that exchange's public holidays, which belong to the country the exchange sits in and not to the country the account sits in. A contract written on a futures market inherits that market's calendar and an expiry besides. The only reliable source for any of them is the contract specifications.

Holiday behaviour is the case most often missed, because an instrument can be quotable while the market that prices it is shut. It can hold a narrow band for a session, on quotes with little behind them, then reprice in a single move when its home market returns.

Touched but not filled 

The limit family fails in the opposite direction, and the failure is easy to miss because nothing visible is charged for it. A limit order names the worst price it will accept, so it never transacts worse than its level. What it can do is not transact at all. Where a market reaches the level, turns and leaves without sufficient quantity transacting there, the order stays pending and the position is exactly as it was. Where part of the quantity transacts, the order is partially filled, leaving a position smaller than intended beside an instruction that is still live. A take profit and the limit leg of a stop limit carry the same property, and the stop limit is the sharpest case: a fast market can trigger the stop, travel through the limit, and leave the position open with the level written to end it now behind the market.

What a guaranteed stop promises, and what it does not 

Some venues offer an order type that does guarantee its level, usually under a name such as guaranteed stop, and the difference from an ordinary stop is not one of degree. An ordinary stop specifies when an instruction is sent and nothing about the price it receives. A guaranteed stop is a contractual undertaking that the position closes at the specified level whatever the market did in between, so the venue absorbs the distance between the level and the price actually available. Absorbing that distance is the entire product, and it is priced accordingly: a premium is charged, the conventions for charging it differ, and the instruments, sizes and minimum distances it is offered on are restricted. Whether a given firm offers it at all is a matter for that firm's contract specifications rather than something the word stop implies.

The undertaking changes the fill and nothing else. The distance from the opening price to the level is realised in both cases and the premium is added in both, so the guaranteed version produces the smaller debit only where the gap turns out larger than the premium, which is unknown when the order is written and is the reason the premium exists.

The failures that are not about price at all 

Not every way an instruction fails to act concerns the price it receives. A pending order can be rejected outright, where the size falls outside the permitted range, the level sits closer to the market than the instrument allows, or the account holds too little margin for what the order would open. An instruction attached to a position is cancelled with the position, and an order with no stated expiry persists across sessions, so it can be reached weeks after the reasoning that produced it stopped applying.

One mechanism overrides all of them. Where the margin held against an open position no longer meets its requirement, the position becomes liable to be closed by the counterparty, and that close happens irrespective of any instruction resting against it, at whatever price is available at that moment. Losses in that sequence are not limited to the amount deposited. It is the case in which an order does not fail so much as become irrelevant, and it is why the arithmetic of contract size sits earlier in this module than any order type does.

Where practitioners disagree 

The first unsettled argument is whether positions are carried through a weekend at all. One tradition closes everything before a market shuts, on the reasoning that exposure continues while the ability to act does not. Another answers that closing and reopening pays the spread twice against a risk that does not materialise on most weekends, and that a calendar rule is no substitute for a contract size at which a reopening away from the level is survivable. Neither disputes the mechanics, and both concede that the rule which is right on the ordinary weekend is wrong on the weekend that matters.

The second is whether a guaranteed level is worth its premium. The argument for it is that it converts an unbounded and unknowable distance into a known charge, and a known charge can be reasoned about in advance while a gap cannot. The argument against is that the premium is paid on every order while the gap arrives on very few. Both are arguments about the price of an uncertain event, and neither is settled by anything this page could show, because a figure comparing the two would be a claim about how well a method performs.