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You have 100 shares of FOO. It is trading at $50. You bought it at $40, so you have a stop-loss order to sell it at $35. Some "liquidity provider"'s algorithm g
by gergles 14y ago
You have 100 shares of FOO. It is trading at $50. You bought it at $40, so you have a stop-loss order to sell it at $35. Some "liquidity provider"'s algorithm goes haywire and the price drops to $30. The exchange's "circuit breakers" halt trading or revert the trades, and then the price quickly goes back up to $50.
Unfortunately for you, your brokerage's computer saw the price drop, executed your stop-loss order, and put your shares up for sale, which were then purchased by another 'liquidity provider' (or hell, maybe even the same one that caused the value to drop in the first place). You've now lost $1500 because of HFT. Your trade can't be reverted, because fuck you, that's why, but the holy "market makers" get their trades rolled back so that their rich friends don't suffer anything for their alogrithmic fail.
- pash 14y agoThe real problem is that your "stop loss" is a standing order to sell, at any price, if the price of your asset falls below some threshold. That is fundamentally a bad idea, and it's just this sort of trading behavior that creates liquidity crises.
- damoncali 14y agoNo, the real problem is that one person's program broke and caused real losses for other people who were acting rationally. If you must account for a non-zero chance that some geek's algorithm will go totally batshit and lose you a bunch of money in unpredictable ways, there is a huge problem at the very core of the marketplace.