Why are Stop Loss and Take Profit not allowed with market orders?

Alpaca Trading
1

I’ve been using Alpaca via TradingView (I didn’t land here to write software, but Alpaca was the only option in TradingView for crypto so I made an account, but I ended up also trying to trade stocks).

When I place a market order with my small account (started at $50), it will not let me place a SL or TP.

TradingView showed this message:

fractional orders must be simple orders (Code = 42210000). To learn more, please contact your broker.

Why is this?

Small side question: I’m guessing fractional shares are possible only in a margin account. Is that correct?

2

@trusktr You asked…

fractional orders must be simple orders. Why is this?

The issue isn’t exactly fractional orders but rather notional orders. Notional orders are specified as a dollar amount and not an actual share quantity. Alpaca treats both of these the same primarily because 99% of all fractional orders are specified as notional (eg buy $25 of AAPL).

The issue is notional orders require one to know the price up front. All orders are fundamentally transacted in quantity of shares. If one knows the fill price up front, the quantity of shares can be calculated (ie notional / fill_price). The order quantity can be calculated for 1) market orders since they fill at the current quote or 2) limit orders since they fill at the limit price. A problem arrises with stop loss orders because the fill price isn’t known. Therefore, the quantity of shares to order isn’t known up front and the order cannot be placed.

There are some other smaller technical details, but that is the basic reason one cannot place fractional stop loss orders. One can however place a ‘take profit’ order (which is really just a limit order). That is also why ‘complex fractional orders’ in general aren’t supported. Supporting notional orders becomes ‘odd’. For example regular OTO order makes sense, buy 5 XYZ → sell 5 XYZ. For a notional order however, that doesn’t make sense, for example buy $25 XYZ → sell $25 XYZ. So, to avoid that ‘odd’ scenario complex orders are not allowed (at least for now).

You also asked…

I’m guessing fractional shares are possible only in a margin account. Is that correct?

That is sort of a trick question. All Alpaca accounts are technically ‘margin accounts’. But, even if one doesn’t have available margin (eg account equity is under $2000) one can still place fractional trades.

There is a bit more on all this in the docs if you’re interested.

Hope that answers your question.

3

Not sure. Another question is, if you offered cash accounts (later) would fractional shares still be allowed? Not sure if this is a thing in general that applies to brokers in general.

Or for example, do Nasdaq or NYSE offer fractional shares? If no, then how is it that Alpaca can. Because if no, then Alpaca would need to somehow own 1 whole share for Alpaca to let me own a fraction, which would mean Alpaca is taking a risk similar to margin just for me to own a fraction, hence why I thought maybe it had to do with margin.

About SL and TP, really what I want is to enter that in terms of price. For example, I would enter the market or limit price for a long position. Then stop loss would be a price value below that entry price, and take profit would be a price above. Seems simple to me, without knowing complexities that Alpaca has with exchanges.

Really I’d like multiple “positions”. For example, when I enter into a “position”, I want a SL and a TP for that position, and I’d want to see each position with its particular SL, TP, and P&L.

Currently, each time I bought, it lumped it all into a single position, and then it is difficult to track each move I’m making.

Why do I want to do this? For example one entry at a lower value may be a longer term bet with wider distance between SL and TP. Another bet could be a shorter term one, that I want to manage separately. Both would be on the same stock (f.e. both on TSLA).

In this sense, for each “position” that I’m describing, it has three prices (entry, SL, and TP) and I want to see them individually. This would be an easy way to manage all entries, and it seems to me like an easy thing to implement because the price of SL and TP are relative to a single entry.

For each position, the fractional quantity (or notion, I’ve no idea what the difference is and the link didn’t describe it) would remain constant. For example, if I entered at $10 for 1.5 shares, then my SL could be $9 for the same 1.5 shares, and TP could be $12 for the same 1.5 shares. This method seems easy to implement as opposed to lumping everything into a single position where quantities may become unknown.

The alternative is to allow a single SL and single TP for a whole position no matter how many entries it took. It seems easy to implement too because the quantity is simply the whole position (one position per stock).

4

@trusktr A lot to unpack here so I’ll try to answer one at a time…

if you offered cash accounts (later) would fractional shares still be allowed?

Fractional shares are independent of account type and should be available in cash accounts if/when available.

do Nasdaq or NYSE offer fractional shares? If no, then how is it that Alpaca can. Because if no, then Alpaca would need to somehow own 1 whole share for Alpaca to let me own a fraction, which would mean Alpaca is taking a risk similar to margin just for me to own a fraction, hence why I thought maybe it had to do with margin.

No, exchanges and other trading venues do not offer fractional shares. All trading is ultimately done in full share quantities. Alpaca simply holds (ideally) one share of each symbol it trades fractionally and then credits a portion of that share to the account when fractional shares are bought. If 5 orders were executed to each buy AAPL .3 shares. Alpaca would buy 2 shares (because shares are always traded in full shares. Then Alpaca would credit .3 shares to each of the 5 accounts. The remaining .5 share remains in the name of Alpaca. If everything works out, Alpaca never owns more than 1 share of any symbol. This isn’t a lot of risk, certainly not a risk associated with a specific client or account, hence it isn’t related to margin.

Then stop loss would be a price value below that entry price, and take profit would be a price above. Seems simple to me, without knowing complexities that Alpaca has with exchanges.

The complexity is 1) all orders ultimately need to be placed as a quantity 2) the price isn’t known ahead of time for any order which isn’t either a limit order or a market order. Therefore, the quantity for other order types, such as a stop loss where the fill price is not known, cannot have a quantity calculated so cannot be placed.

Really I’d like multiple “positions”.

Alpaca, behind the scenes, really only works in terms of 1) orders and 2) net position quantity. The complexity if ‘multiple positions’ were supported is every order would require entering which position (or technically ‘lot’) the order adds or subtracts from. This is on the roadmap mostly to support lot tracking for end of year tax cost basis calculations, but not here yet.

5

I don’t understand. How can other brokers like Webull offer stop loss and take profit?

For example, for both Buy and Sell, Webull offers Limit, Market, Stop, Stop Limit, Trailing Stop, Limit + TP/SL, Market + TP/SL, OTO, OCO, and OTOCO.

They can do it, so there’s a way.

It’ll be nice!