How well does stop loss work if a disaster strike?
Feb 04, 2016 at 07:55
Hi,
I was wondering how effective is a stop loss if you are trading a liquid currency or commodity under normal conditions without any major news , compered to a day where you have a major news or a disaster like Japaneses tsunami while trading yen currency pair.
How effective were stop losses for traders who were trading yen while the news starting to come in .
Could you share your experiences in regards to effectiveness of stop losses when everybody is trying to exit the same trade as you?
Thanks,
I was wondering how effective is a stop loss if you are trading a liquid currency or commodity under normal conditions without any major news , compered to a day where you have a major news or a disaster like Japaneses tsunami while trading yen currency pair.
How effective were stop losses for traders who were trading yen while the news starting to come in .
Could you share your experiences in regards to effectiveness of stop losses when everybody is trying to exit the same trade as you?
Thanks,
Membre depuis Jan 08, 2016
posts 2
Feb 04, 2016 at 11:00
Hi thats a bit of a tough question to answer as it depends on a lot of different factors such as broker/instrument traded/type of news release etc,
In normal market conditions your stops should be triggered at the price you request,but in general trading around news events is tricky as stops will not always get triggered at your requested price(stops do not guarantee price just an exit)
If liquidity providers pull out of the markets brokers can not execute your stop,thus you will incur slippage and that will be very large for say the tsunami or swiss franc peg removal as well as other crashes the markets have seen,
this is because everybody wants to get out of the wrong side of their trades and depending on the size of your order
(large orders execute first then go down in size so if your a small size you will have more slippage) market makers and brokers do not want big losses so either stop giving prices or suspend orders.
I have seen client slippage of 300+pips around major disasters.
best to stay on the sidelines when there is a big news event,as for disasters these can not be predicted so that is just part of trading but happens very rarely
Hope this helps regards
Londonkicks
In normal market conditions your stops should be triggered at the price you request,but in general trading around news events is tricky as stops will not always get triggered at your requested price(stops do not guarantee price just an exit)
If liquidity providers pull out of the markets brokers can not execute your stop,thus you will incur slippage and that will be very large for say the tsunami or swiss franc peg removal as well as other crashes the markets have seen,
this is because everybody wants to get out of the wrong side of their trades and depending on the size of your order
(large orders execute first then go down in size so if your a small size you will have more slippage) market makers and brokers do not want big losses so either stop giving prices or suspend orders.
I have seen client slippage of 300+pips around major disasters.
best to stay on the sidelines when there is a big news event,as for disasters these can not be predicted so that is just part of trading but happens very rarely
Hope this helps regards
Londonkicks
Membre depuis Sep 12, 2015
posts 1948
Feb 04, 2016 at 12:24
(édité Feb 04, 2016 at 12:27)
The phones start ringing before the news comes out,your buddy in Tokyo is screaming at you down the phone!'SELL,SELL,SELL'. Larger orders are more difficult to close around disasters but they are first in line,its been known for traders to close the wrong positions or hit Buy instead of Sell at times like you describe,brokers servers aren't fast enough to keep up with the orders at a time like this,I'm sure you have seen on charts where the price has jumped through major support areas with missing bars.At the end of the day its up to the broker weather they honour stop losses at a time like this,depends on the contract you signed up to.You can pay extra for a guaranteed stop loss if your trading overnight or news,at lease you have some protection.
"They mistook leverage with genius".
Feb 04, 2016 at 13:20
snapdragon1970 posted:
The phones start ringing before the news comes out,your buddy in Tokyo is screaming at you down the phone! Larger orders are more difficult to close around disasters but they are first in line,its been known for traders to close the wrong positions or hit Buy instead of Sell at times like you describe,brokers servers aren't fast enough to keep up with the orders at a time like this,I'm sure you have seen on charts where the price has jumped through major support areas with missing bars.At the end of the day its up to the broker weather they honour stop losses at a time like this,depends on the contract you signed up to.You can pay extra for a guaranteed stop loss if your trading overnight or news,at lease you have some protection.
Is there any statistics about this? How many accounts were drastically reduced or closed due to unexpected events? News or a disaster? I cant imagine 300pips hit using even low 1:10 leverage . How much extra does it cost to have guaranteed stop loss about? And how big does your account has to be to have a reasonable chance of your order being filled without a stop stop guarantee, using 1:3 o1:5 leverage.Thanks
Feb 04, 2016 at 13:21
Londonkicks posted:
Hi thats a bit of a tough question to answer as it depends on a lot of different factors such as broker/instrument traded/type of news release etc,
In normal market conditions your stops should be triggered at the price you request,but in general trading around news events is tricky as stops will not always get triggered at your requested price(stops do not guarantee price just an exit)
If liquidity providers pull out of the markets brokers can not execute your stop,thus you will incur slippage and that will be very large for say the tsunami or swiss franc peg removal as well as other crashes the markets have seen,
this is because everybody wants to get out of the wrong side of their trades and depending on the size of your order
(large orders execute first then go down in size so if your a small size you will have more slippage) market makers and brokers do not want big losses so either stop giving prices or suspend orders.
I have seen client slippage of 300+pips around major disasters.
best to stay on the sidelines when there is a big news event,as for disasters these can not be predicted so that is just part of trading but happens very rarely
Hope this helps regards
Londonkicks
Are the brokers looking at your leverage and the size of your account, or only the size of your account in regards to the priority of your order being filled.
One trader has 1:100 leverage and $2000 in the account with $100,000 in one single trade
Second trader 1:2 leverage and $200,000 in the account with $100,000 in one single trade
Which trader will have the order filled first?
thanks
Membre depuis Sep 12, 2015
posts 1948
Feb 04, 2016 at 18:52
Market orders are filled first for matching purposes or T7 is used,limit orders and quotes are sorted next,it doesn't matter the size,it depends how fast there system can match your order!but there are other systems ,pro rata,PRA,TPRA are just some.The settings can be changed to suit the broker.They can see all of your account information,trade something no ones heard of ,you won't be noticed:)
"They mistook leverage with genius".
Membre depuis May 20, 2011
posts 724
Feb 05, 2016 at 11:58
lou111 posted:Read your brokers disclaimer and conditions statement like you are supposed to when you sign up. All your questions will be answered there.
Hi,
I was wondering how effective is a stop loss if you are trading a liquid currency or commodity under normal conditions without any major news , compered to a day where you have a major news or a disaster like Japaneses tsunami while trading yen currency pair.
How effective were stop losses for traders who were trading yen while the news starting to come in .
Could you share your experiences in regards to effectiveness of stop losses when everybody is trying to exit the same trade as you?
Thanks,
Membre depuis Jan 08, 2016
posts 2
Feb 05, 2016 at 11:58
Brokers can see all info for your account.
Infrastructure is different broker to broker,with the amount of liquidity providers now days and ecns & dark pools and the like matching orders is no problem.Taking big losses is!
Do you think a broker would rather slip and lose a big institutional client or small retail trader?
And so will fill the largest orders first for stops
So if they have an order for 1,000,000 lots this will be filled before say an order for 100,000 lots
that is my experience anyway having worked in many brokerages over many years.
😉
Hope this helps regards
Londonkicks
Infrastructure is different broker to broker,with the amount of liquidity providers now days and ecns & dark pools and the like matching orders is no problem.Taking big losses is!
Do you think a broker would rather slip and lose a big institutional client or small retail trader?
And so will fill the largest orders first for stops
So if they have an order for 1,000,000 lots this will be filled before say an order for 100,000 lots
that is my experience anyway having worked in many brokerages over many years.
😉
Hope this helps regards
Londonkicks
Membre depuis Oct 02, 2014
posts 909
Feb 05, 2016 at 14:20
It doesn't work. I've been in situations where the stop was not triggered. See 15 Jan 2015 SNB decision.
Positivity
Membre depuis May 08, 2014
posts 35
Feb 05, 2016 at 15:53
Indeed, a lot of retails, brokers, funds and banks got reminded that a stop loss is not a sure thing.
A stop loss is just an order to cut your position. If you have nobody who is willing to take the opposite of the trade , you are doomed to go down into the abyss with your position.
You don't really need big disaster, on important news it can happen to have 15 pips gaps, with an initial stop loss of 10 pips, this makes you a loss 2.5 ti;es greater than expected.
Some rules if you want to survive, do not trade pegged currencies and get out of positions before news expect if largely in profit already
A stop loss is just an order to cut your position. If you have nobody who is willing to take the opposite of the trade , you are doomed to go down into the abyss with your position.
You don't really need big disaster, on important news it can happen to have 15 pips gaps, with an initial stop loss of 10 pips, this makes you a loss 2.5 ti;es greater than expected.
Some rules if you want to survive, do not trade pegged currencies and get out of positions before news expect if largely in profit already
arigoldman posted:
It doesn't work. I've been in situations where the stop was not triggered. See 15 Jan 2015 SNB decision.
charles-antoine.dethibault@
Feb 08, 2016 at 08:04
arigoldman posted:
It doesn't work. I've been in situations where the stop was not triggered. See 15 Jan 2015 SNB decision.
That move was just devastating. And it happened in matter of minutes.
Could you share how did your trading change in regards to leverage after that SNB decision.
thanks
Feb 08, 2016 at 08:05
tranle447 posted:
Should trade with leverage 1:2 maximum . In this case , there is no way your account would be wiped out , even a big disaster strikes.
It's pretty safe leverage , but even that would have been devastating . Losing 30% in 30min, what if you sold after you lost 30% which is 60% loss in your account ,still pretty bad.
But i can imagine it must be really difficult trading currencies 1:2 leverage.
Membre depuis Feb 22, 2011
posts 4862
Feb 09, 2016 at 08:42
lou111 posted:Yes exactlyarigoldman posted:
It doesn't work. I've been in situations where the stop was not triggered. See 15 Jan 2015 SNB decision.
That move was just devastating. And it happened in matter of minutes.
Could you share how did your trading change in regards to leverage after that SNB decision.
thanks
15 Jan 2015 SNB decision - positions simply did not close at SL. Good brokers did refund this but even big players like Pepperstone did not.
Membre depuis Jul 23, 2020
posts 759
Jun 08, 2021 at 10:15
It depends on brokers' execution speed. But traders will face slippage.
Membre depuis Mar 16, 2021
posts 477
Jun 15, 2021 at 00:19
SofieAndreasen posted:Exactly, many important things depend on the broker.
It depends on brokers' execution speed. But traders will face slippage.
Membre depuis Mar 16, 2021
posts 477
Jul 13, 2021 at 11:38
It is necessary to have an economic idea about the stock market. You have to trade with 90% probability in the market. For this stop loss has to be used. Investment without stop loss can be risky.
