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How well does stop loss work if a disaster strike?

lou111
Feb 04 2016 at 07:55
7 posts
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,

Londonkicks (Londonkicks)
Feb 04 2016 at 11:00
2 posts
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

snapdragon1970 (snapdragon1970)
Feb 04 2016 at 12:24
1944 posts
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".
lou111
Feb 04 2016 at 13:20
7 posts
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

lou111
Feb 04 2016 at 13:21
7 posts
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



snapdragon1970 (snapdragon1970)
Feb 04 2016 at 18:52
1944 posts
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".
FXtrader2010
Feb 05 2016 at 11:58
724 posts
lou111 posted:
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,
Read your brokers disclaimer and conditions statement like you are supposed to when you sign up. All your questions will be answered there.

Londonkicks (Londonkicks)
Feb 05 2016 at 11:58
2 posts
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

arigoldman (arigoldman)
Feb 05 2016 at 14:20
907 posts
It doesn't work. I've been in situations where the stop was not triggered. See 15 Jan 2015 SNB decision.

charlesadethib86
Feb 05 2016 at 15:53
35 posts
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

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@
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