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This may seem a silly question but I cannot figure out to whom stop loss money actually goes to. For example at index value 17000, 1000 thousand S/L orders are resting. Also at 17000 we have 500 resting sell orders.
17000 is hit so 1000 s/l orders are triggered and 500 resting orders are triggered. To my way of thinking some of the money may go to the profit takers. But what if there is a surplus, what happens to the surplus.
Thanks LittleJohn
Can you help answer these questions from other members on NexusFi?
A stop-loss order is no different than a sell order except that it has a trigger point at which it becomes active.
I am not sure of your example but I will use a stock example.
Let us say the price of a stock is currently $10 per share... you own 100 shares and want to protect yourself from a drop in price so you set a stop-loss order at $9.50.
that order just sits there doing nothing until the price of the stock drops to $9.50 and at that price there may be 10 sellers of stock that set a limit or market order to sell at that price... if it is a regulated market place their order are first in line to be sold to buyers.
Your stop-loss order has now been activated as a market order to get the best price it can get. You are not guaranteed to get your price of $9.50 because there may not be enough shares desired at $9.50 to satisfy all the sellers at that level, that are in the lineup before you...so the price falls lower and lower until your shares get bought.
the shares in a regulated market are not added to a float of some kind... they are purchased by other investors interested in that company's stock and for some reason it is being driven to a lower and lower price.
The stop-loss money goes to the person whose shares were for sale and it comes from other investors that wish to buy those shares
Many thanks for the resposes so far. sharpshoota , thats a terrific little video with a fantastic explanation of auction theory I really enjoyed it.
My basic question though is what happens to the surplus money generated when stops are hit. If say 1000 stops are hit and triggered but only 500 orders filled on the otherside of the market. Where has the money gone too from the surplus 500 stops.
PS just sorted it in my head, the money can only go to brokers.
what's the synopsis then? How do you know the difference between s/l and resting orders? I think the reason you're having a hard time getting an answer to this is because we just don't have enough information about what you're asking
R.I.P. Joseph Bach (Itchymoku), 1987-2018.
Please visit this thread for more information.
John I'm pretty sure it doesn't go to the broker. Brokers don't just take someone's money even if they use the money to take the other side of the trade. If the market goes against them they're still responsible for paying back what is owed to the original trader. No one broker can move the market alone. The amount of liquidity for that is pretty astronomical for just a petty broker. The only people that can truly move the markets are institutions with millions of dollars and they aren't interested in any one person's money, they're more interested in hitting a group of stop losses in a cluster taking on the market as a whole. What's probably going on is either the money never leaves the trader's account because their orders were hit but not triggered, or their order was matched with a price directly above or below the price that their order was triggered. Take into consideration slippage or spread and that might answer your question. I'd have to see your DOM to get more insight, because like other people have mentioned, there's no way to tell if an order is a stop loss or entry order. I hope that gets closer to answering your question.
Cheers,
Itchy
R.I.P. Joseph Bach (Itchymoku), 1987-2018.
Please visit this thread for more information.
