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If it gaps down stop loss orders won't execute at the stop loss order price (because there is no buyer at that price). Therefore previous paper profits are not
by drited 6y ago
If it gaps down stop loss orders won't execute at the stop loss order price (because there is no buyer at that price). Therefore previous paper profits are not locked in with certainty with stop loss orders. You need prices to swoop down in an orderly way with sufficient liquidity for stop losses to work in the way I think many imagine they do.
- sjg007 6y agoIt would execute at the gap right?
- svachalek 6y agoIt would go to the first buyer under the limit. So for example if you had a stop loss at $200 and the stock went from $201 to $2, it would sell for $2.
- deleted 6y ago[deleted]
- nrmitchi 6y agotldr; When your stop-loss is hit, it executes at the best price available at the time, which (as far as I know) has no guarantees. I think a good example of this is the Ethereum flash-crash on Coinbase in.... 2017? Something happened (IIRC someone submitted a very large market-sell, maybe by accident), but it completely wiped out half of the order book. This triggered all of the stop-losses that people had submitted. But... almost the entire order book was gone. So they sold very low. Which triggered more stop-losses. Which sold lower, and so on. In the end stop-losses ended up largely selling to one super-lucky-account-that-I'm-sure-set-this-up-as-a-joke-and-forgot-about-it who had a limit buy in for 10c/ETH. IIRC the price was ~350 when this started. When people were able to start buying again, the price jumped up again (obviously). But this lucky person was able to buy ~5k ETH at 10c, because all the stop-losses triggered. ¯\_(ツ)_/¯