Disadvantage of stop loss order...

[rogue1]

https://www.thebalance.com/how-to-legally-manipulate-stock-prices-3140856

I just came across this article. I have heard that if you place a stop loss sometimes those orders are visible to more sophisticated traders and they can push down the price, grab your stock cheap, then push it back up again.

Does anyone have any way to guard against this kind of event? Would a price alert be safer..?

 

[rogue1]

I should add, the reason for my enquiry is I just got stopped out where the price jagged down out of the blue, having moved steadily upwards prior. It went down to exactly the point where I was stopped and hasn't moved since...

 

[Zaxon]

I just came across this article. I have heard that if you place a stop loss sometimes those orders are visible to more sophisticated traders and they can push down the price, grab your stock cheap, then push it back up again.

The biggest threat is in off market trading like CFDs. Your broker taking the other side of your "bet", fullying being able to see your stop-loss, is a bit of a wrought.

On the open market in shares, you have less to worry about. They'd have to buy a whole lot of shares to move the price and stop you out.

Does anyone have any way to guard against this kind of event? Would a price alert be safer..?

Price alerts do provide the protection you're after. But that needs to be paired with your availability to trade. If your stop price is reached at 10:30 am and you can't place an order until after EOD when you get home from work, that's an addition risk.

 

[qldfrog]

Yes you will see this happen, do not play with stop loss unless on very big stocks, it has been my experience also to see curve smooth and going one way or the other with a punctual sudden verticalverti taking just my small stop loss before going back to the trend..you can look at volume , time lowest and yes it was just you with your pathetic 3k of stop loss order...
Have this happen 2 or 3 times and you learn your lesson
So this is not a myth

 

[rogue1]

The biggest threat is in off market trading like CFDs. Your broker taking the other side of your "bet", fullying being able to see your stop-loss, is a bit of a wrought.

On the open market in shares, you have less to worry about. They'd have to buy a whole lot of shares to move the price and stop you out.


Price alerts do provide the protection you're after. But that needs to be paired with your availability to trade. If your stop price is reached at 10:30 am and you can't place an order until after EOD when you get home from work, that's an addition risk.

Yes you will see this happen, do not play with stop loss unless on very big stocks, it has been my experience also to see curve smooth and going one way or the other with a punctual sudden verticalverti taking just my small stop loss before going back to the trend..you can look at volume , time lowest and yes it was just you with your pathetic 3k of stop loss order...
Have this happen 2 or 3 times and you learn your lesson
So this is not a myth

So what you're saying is that small stocks with low volume are more vulnerable to such movements, and I should only use a stop loss with higher volume stocks..?

 

[Smurf1976]

The biggest threat is in off market trading like CFDs. Your broker taking the other side of your "bet", fullying being able to see your stop-loss, is a bit of a wrought.

Been there, done that and the CFD prices when to places where the "real" underlying market never went. As in levels which would have been headline news in the mainstream media if the real market had done it.

I've avoided such things ever since.

 

[myrtie100]

Me too, similar story. I won't use them on CFDs.

 

[Zaxon]

So what you're saying is that small stocks with low volume are more vulnerable to such movements, and I should only use a stop loss with higher volume stocks..?

Thinly traded stocks are more open to manipulation. Technically, your stop-loss order only sits in your broker's computer. It's not an actual order in the market until your trigger price is reached. Probably a broker like IB or CMC isn't going to buy shares against you. Is it likely to sell the fact that you have a stop-loss on to a 3rd party? It's possible. Robinhood can provide $0 brokerage trading because they sell the "order flow". So if they do, probably others do it too.

But is an institutional investor going to buy up $250k worth of stock just to trigger your $5k stop-loss? You'd have to answer that for yourself.

 

[Smurf1976]

The big issue is with “bucket shop” type operations who needn’t do anything at all to the underlying market in order to take your stops out.

 

[rogue1]

The big issue is with “bucket shop” type operations who needn’t do anything at all to the underlying market in order to take your stops out.

Can you elaborate on what you mean by this..?

 

[Smurf1976]

Can you elaborate on what you mean by this..?

CFD, forex or other "bucket shops" where your trade is not backed by any purchase of the real asset.

You buy $10,000 worth of CFD's which are supposedly going to track the S&P500 index or Telstra shares for example. They take your $10,000 but no actual index fund or shares are purchased - the money never leaves the broker.

Since there are no real Telstra shares or S&P500 index fund involved, there's nothing to say that your prices need to exactly match those of Telstra or the index.

That then leaves the door wide open to manipulation.......

In short, shares in BHP (or any other company) and something which simply tracks the BHP share price but which does not involve the owning of real shares are very different things.

 

[Joules MM1]

CFD, forex or other "bucket shops" where your trade is not backed by any purchase of the real asset.

You buy $10,000 worth of CFD's which are supposedly going to track the S&P500 index or Telstra shares for example. They take your $10,000 but no actual index fund or shares are purchased - the money never leaves the broker.

Since there are no real Telstra shares or S&P500 index fund involved, there's nothing to say that your prices need to exactly match those of Telstra or the index.

That then leaves the door wide open to manipulation.......

In short, shares in BHP (or any other company) and something which simply tracks the BHP share price but which does not involve the owning of real shares are very different things.

some cfd providers are also DMA brokers, some synthetic market makers are also DMA brokers
maybe define what you mean with the generic term "bucket shop"

 

[Smurf1976]

maybe define what you mean with the generic term "bucket shop"

Any situation where the broker is in practice also the issuer of and only market for whatever your money is actually invested in.

I've kept well away from such things ever since I spotted the "flash crashes" which occurred in the broker's market but not the real one. A sure way to take out pretty much everyone's stops.

 

[qldfrog]

So what you're saying is that small stocks with low volume are more vulnerable to such movements, and I should only use a stop loss with higher volume stocks..?

My own opinion indeed, no one can collapse wow or bhp for a small stop loss parcel (yours or mine), but on smaller caps, low volume make it much easier, you might have half a dozen orders at a time

 

[rogue1]

My own opinion indeed, no one can collapse wow or bhp for a small stop loss parcel (yours or mine), but on smaller caps, low volume make it much easier, you might have half a dozen orders at a time

I went back and checked. You're right, the volume was extremely low...

 

[qldfrog]

Y

I went back and checked. You're right, the volume was extremely low...

Yeap that is ok, lesson learnt
Better to be sent notification below a certain value and handle the order manually on these shares