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The problem with the IOC order is that you have execution risk. I.e. quite possibly your order isn't filled. Then if your favorite stock were to go down and sta

The problem with the IOC order is that you have execution risk. I.e. quite possibly your order isn't filled. Then if your favorite stock were to go down and stay down, you would still be holding it. In short there is no perfect "stop loss" order. There is either price risk or execution risk - pick your poison. That said, unlimited price risk and zero execution risk is probably NOT the optimal point to be at.

secabeen 11y ago
I'm not sure about that. If the market is moving in an orderly fashion, and you're trading in a very liquid asset, market orders remove a psychological impediment to trading. For someone who trades 3-5 times a year, doing a limit order requires additional consideration (making sure you're doing the right limit, setting a limit price, etc.) If you just want to buy or sell some stock for reasons totally unrelated to trading, It's rational to accept a tiny risk that the market is going to have a shit fit between when you hit submit and when your order is filled 2 seconds later when the news is quiet. Certainly, I would never put in a market order when the market is operating under circuit-breakers and things are unstable. When things are stable, it can be a reasonable choice for someone transacting in stock who just wants it done so they can get on with other things they have to do.
- kasey_junk 11y ago
  If you are trading 3-5 times a year, I'd argue that requiring people to put in the limits on their limit orders would be a good thing. It makes people think about how the market actually works instead of how they hope it works.
  - secabeen 11y ago
    But what benefit does that actually have? People aren't going to remember this interaction or learn anything, they're just to be annoyed at having to come up with that number. They might even put off the transaction. I would be in favor of restricting the use of market orders by non-professionals during any time a market special rule is in place (circuit breakers, Rule 48, etc.) However, I think allowing them during normal market operation makes transacting easier for investors, which is also a good thing.
    - kasey_junk 11y ago
      If someone is so annoyed to have to come up with a price that makes their order invalid, I'd argue they should put off the transaction.
seanhunter 11y ago
Yes, completely agree. And in fact for my own trading I don't use stops because they introduce downside that isn't there in many other situations. On the quant trading analyses that I have done, adding stops frequently makes performance strictly worse while not helping that much when things get really extremely bad, because of course there is no guarantee of liquidity at your stop level if the market is dropping like a stone. So I've seen things like having a trigger in an order manager that at a certain price will place an aggressive IOC limit order to unwind something. In normal conditions that will behave exactly like an at-market stop loss order, except that in the case of really extreme disruption you won't get filled before your limit. So the hope is in those cases the market will bounce. You don't want to get unwound at any cost on your stop if the market is going to rapidly recover afterwards. It also means there's no information leakage if you're worried about your broker taking advantage of the information in your stop (paranoid, but yes...). As you've said, there's no panacea.

secabeen 11y ago

I'm not sure about that. If the market is moving in an orderly fashion, and you're trading in a very liquid asset, market orders remove a psychological impediment to trading. For someone who trades 3-5 times a year, doing a limit order requires additional consideration (making sure you're doing the right limit, setting a limit price, etc.) If you just want to buy or sell some stock for reasons totally unrelated to trading, It's rational to accept a tiny risk that the market is going to have a shit fit between when you hit submit and when your order is filled 2 seconds later when the news is quiet. Certainly, I would never put in a market order when the market is operating under circuit-breakers and things are unstable. When things are stable, it can be a reasonable choice for someone transacting in stock who just wants it done so they can get on with other things they have to do.

kasey_junk 11y ago
If you are trading 3-5 times a year, I'd argue that requiring people to put in the limits on their limit orders would be a good thing. It makes people think about how the market actually works instead of how they hope it works.
- secabeen 11y ago
  But what benefit does that actually have? People aren't going to remember this interaction or learn anything, they're just to be annoyed at having to come up with that number. They might even put off the transaction. I would be in favor of restricting the use of market orders by non-professionals during any time a market special rule is in place (circuit breakers, Rule 48, etc.) However, I think allowing them during normal market operation makes transacting easier for investors, which is also a good thing.
  - kasey_junk 11y ago
    If someone is so annoyed to have to come up with a price that makes their order invalid, I'd argue they should put off the transaction.

seanhunter 11y ago

Yes, completely agree. And in fact for my own trading I don't use stops because they introduce downside that isn't there in many other situations. On the quant trading analyses that I have done, adding stops frequently makes performance strictly worse while not helping that much when things get really extremely bad, because of course there is no guarantee of liquidity at your stop level if the market is dropping like a stone. So I've seen things like having a trigger in an order manager that at a certain price will place an aggressive IOC limit order to unwind something. In normal conditions that will behave exactly like an at-market stop loss order, except that in the case of really extreme disruption you won't get filled before your limit. So the hope is in those cases the market will bounce. You don't want to get unwound at any cost on your stop if the market is going to rapidly recover afterwards. It also means there's no information leakage if you're worried about your broker taking advantage of the information in your stop (paranoid, but yes...). As you've said, there's no panacea.