I watched the stop trigger video and confused about the market offset. Can someone please explain to me the use of the market offset? Say you are going long and have an offset of 10 like darrell says he does. If the price is 70 when the trigger is hit why would you ever want to get in at 80 when you could have got in for 70? Or even if you had an offset of 2 and the price was 60, you’re getting in at 62. I know the difference is small but the offset is still eating into your potential profits. Darrell says the reasoning behind offset has something to do with getting filled or something like that and I kept rewinding part of the video trying to understand but I’m still stuck. Can anyone clarify? and also explain the thought process when choosing an offset? thanks.
market offset
The purpose of the Market Offset has nothing to do with increasing the offset number so that you enter at a much higher price. In your example, if the price of the option were $70 when the trigger is hit, you can’t enter at $80…think about it: you can only get in at the current price or better, which means that you would get in at $70.
The reason the plugin has an offset feature is because of the fact that you may request to be filled at the current price, but the market moves in the few seconds it takes you to click the button “activate stop trigger”. It doesn’t always move, but when it does you will see that it gets annoying to see it move in a direction which makes your entry price appear to be “out of range” to get filled. If you were hoping to enter at $70 but two seconds later the price increases to $70.25, your BUY order would never be filled. It would get stuck, as Darrell put it, in “working order land”.
If you don’t understand that, then you must remember what a Limit Order is and how it works. It’s a request to get filled at your price OR BETTER. If you are buying, then a “better” price is a LOWER price. So, going back to the previous example, when you requested to get your order filled at $70, which WAS the current price when you clicked on it, but then you move your mouse over to “activate trigger” and in those two seconds the current price goes from $70 to $70.25, you can see that $70.25 is not “better” than $70…since you are BUYING and you want the $70 price or better (better, meaning cheaper).
Of course, you can simply go to your order ticket, which is annoyingly sitting under “Working Orders” and correct your requested price to $70.25. It would then get filled and you are happy (assuming you want to get in at that price. Otherwise wait until it drops to get filled). But prices are always adjusting, so you are likely to have this problem very often where the price you request quickly dances away from you and forces your order to not get filled.
To solve this problem, all you need to do is request a HIGHER price than what you really want and this will guarantee that you order gets filled. But it will get filled at the CURRENT price, and not at the higher price you requested. That’s just how market makers fill orders. You say to them, “Can you fill my order to BUY at $80, please?” (even though you really want to be filled at the current price of $70) and they say to you, “Sure thing, mister! You want to get in at $80 bucks or better? Well, the current price is down at $70 and that is a bargain for a buyer like you. So we will fill your order at this much better price of $70” and BOOM you get in at $70, which is the price you really wanted to get filled at…the current price.
You are simply playing a trick with the way you request to get filled. This trick allows you to enter at the current price by pretending for a second that you want a price that is worse, and the market makers naturally fill you at the current price.
So, I hope you can see now…you are requesting to enter at the CURRENT price, but you request that current price with an offset that creates a different price. This different price will create a gap so that a shift in the current price won’t send your order into Working Order, but will get filled 100% of the time.