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NYSE eliminating stop orders

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 Big Mike 
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NYSE to eliminate stop orders from February | Reuters


Quoting 
Investors will not be able to make "stop orders" and "good till cancelled orders" on the New York Stock Exchange and NYSE MKT from Feb. 26, the exchange said, as it looks to reduce risks during choppy trading.

A "good till cancelled order" is valid until an investor cancels it or the trade is executed, while a "stop order" allows an investor to buy or sell a stock when it exceeds a particular price.

On Aug. 24, people had standing "stop orders" that they thought would protect them, but the shares crashed through the "stop orders" and investors were automatically sold out of positions at prices well below where their "stop order" stood.

All existing "good till cancelled orders" and "stop orders" residing on the NYSE book will be canceled, NYSE said on Monday.

"We expect our elimination of stop orders will help raise awareness around the potential risks during volatile trading," NYSE spokeswoman said.

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 tturner86 
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I am half WTF and half that makes sense...

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tturner86 View Post
I am half WTF and half that makes sense...

I think the "risk" will just transfer a bit further down the chain, instead of stops being held at the exchange, just hold them at the broker, assuming they will take that "risk". I say "risk" because ultimately it's always the clients responsibility where a stop order gets filled, but I imagine some brokers may offer to hold the orders on their gateway servers in front of the exchange, so that clients don't have to rely on a software stop inside their client/platform.

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 hobart 
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Big Mike View Post
I think the "risk" will just transfer a bit further down the chain, instead of stops being held at the exchange, just hold them at the broker, assuming they will take that "risk".

Troublesome, because instead of having the full book's liquidity helping you get filled, they are now at the mercy of the infrastructure and local broker/platforms ability to process a marketable order. The real problem of BS high frequency cancels making the book untrustworthy is completely overlooked and they pass the buck to the brokers.

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 bobwest 
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Wow.

Stops are not really protective against a big drop, exactly because of this (you won't get filled until way down.) But they can have a place on ordinary days.

This will affect a lot of people's trading. Will it make anything actually safer? Somehow I doubt it. Has it been proven that cascading stops cause big drops? I wonder about that.

It could, of course, convince someone to be more disciplined and attentive to his position. But for many individual retail traders, not having the automatic discipline of a stop may just open them up to more losses, much of the time.

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bobwest View Post
Wow.

Stops are not really protective against a big drop, exactly because of this (you won't get filled until way down.) But they can have a place on ordinary days.

This will affect a lot of people's trading. Will it make anything actually safer? Somehow I doubt it. Has it been proven that cascading stops cause big drops? I wonder about that.

It could, of course, convince someone to be more disciplined and attentive to his position. But for many individual retail traders, not having the automatic discipline of a stop may just open them up to more losses, much of the time.

Bob.

Wasn't a stop order "only" a limit order with a very wide limit in modern electronic exchanges ?
Maybe it is just a legal thing, because of the name.

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Why are they going backwards? Why should a broker who sells overflow be holding your stop? Does this not create a big conflict of interest in terms of broker Internalization? This looks like a new revenue revenue stream for brokers more than anything else. Brokers can charge more on stop orders, plus have more information to execute against it/ or to on sell it.

Using a black swan event to justify this change is ridiculous.

"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
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Neo1 View Post
Why are they going backwards? Why should a broker who sells overflow be holding your stop? Does this not create a big conflict of interest in terms of broker Internalization? This looks like a new revenue revenue stream for brokers more than anything else. Brokers can charge more on stop orders, plus have more information to execute against it/ or to on sell it.

Using a black swan event to justify this change is ridiculous.

Can't wait to hear the TD spin on it.

"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
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Neo1 View Post
plus have more information to execute against it

This part is certainly not true, come on this isn't Forex! If you are talking about selling order flow, but I am 99% sure it only applies to actual market orders being executed, and not resting orders or limit orders.

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Big Mike View Post
This part is certainly not true, come on this isn't Forex! If you are talking about selling order flow, but I am 99% sure it only applies to actual market orders being executed, and not resting orders or limit orders.

Mike

I'm talking about filling an order from their own inventory.

"Free markets work because they allow people to be lucky, thanks to aggressive trial and error, not by giving rewards or incentives for skill. The strategy is, then, to tinker as much as possible and try to collect as many Black Swan opportunities as you can"
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 justrandom 
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I assumed this was because of flash crashes? Imagine during a flash crash when all the stop orders on the book hit at once.
I don't think it is the worst thing in the world to take that risk and order flow off the exchange.

Somewhere I read "if you are trading with a stop you are trading too big" and stopped bothering with stops. That is more in the context of a portfolio of bets though than trading five ES with your entire account.

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So why get rid of GTC?

Do we all then have to move to DAY orders and put them in each day? Seems rather pointless.

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I don't use stops so my initial reaction was "so what?" but I find it rather disturbing that the exchange sees that the market is so volatile and out of their control that they have to disable GTC and stop orders to prevent stop hunters and people complaining/suing for trades to be broken whenever there's a flash crash.

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Why did they get rid of GTC, some investors might have a specific buy level for a stock that they are happy to own at, regardless if it flash crashes past their order or not. It is a pain in the ass not to have GTC, we get clients all the time who want to buy stock at a specific level and that can rest for months, I ain't reentering them every day.

There seems to be a major problem with removing SL's on the exchange side - people will still want to use them because it's one of the fundamentals of capital protection, especially if you aren't sitting at the computer. This means brokers will offer broker-side SL's to satisfy demand and 90% of the people who use it, will still use it.

This inherently opens up a delay which means the fastest brokers will get the better prices and on the more conspiracy side, big retail brokers now have access to mountains of stop data which they can sell/exploit. This isn't forex but it's not hard to imagine funny business if there is a buck to be made.

Does this smell like something HFT's can exploit? If a market starts dipping quick, HFT don't even need to know where the stops are, they can just jump in and front run all the stops as they flood in from the slower brokers. This sounds like it will exacerbate the problem not reduce it.

https://www.cnbc.com/2015/11/18/why-will-the-nyse-stop-accepting-stop-orders.html


Quoting 
So let's look at an investor who had a stop order that day. Let's take a stock that closed the previous day at $60. Our investor has a stop order at $55, meaning sell it if it hits $55. It opens at $54, so the stop order becomes a market order and it gets executed at $54.
Five minutes later, the stock is trading at $58. The investor is not very happy. The investor had a stop order in to protect against the stock dropping but didn't expect it would bounce back a few minutes later.
The investor is a victim of an extreme case of market volatility.
What could be done to protect against having that order execute in that type of market? Not much. That order executed properly. The investor could use a limit order, which would only execute at the limit price or higher. So if the investor put in a limit order at $55, it would only have sold at $55 or higher, rather than at $54. But that is small consolation.

Or, the stock is fked and it goes to $10 and instead of losing $4 you lose $44. Widen the stop? Bouncing back happens all the time, that's part of the risk. What will happen now is, instead of getting stopped out for a few bucks, the one time we actually do crash and it doesn't bounce, all these retail guys are gonna be stuck with massive losses because they couldn't stop out.

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I have read that stop-loss orders triggering can cause mispricing in ETFs where they fall below their NAV.
However, the number of stop orders in the past six months was less than 1% on the NYSE.
So I am not sure what is the real agenda behind this policy.

"We expect our elimination of stop orders will help raise awareness around the potential risks during volatile trading," NYSE spokeswoman said. I am sorry, this is not an explanation, this is like saying "We will eliminate electricity so you understand how essential it is to your life".

Policies like this, and this is only my opinion, are meant to protect someone legally.
This is not a retail friendly policy.

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NASDAQ never had one, but good many ECNs Like Edge have them, just route your stop order there. What is a problem with it?

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PeakGrowth View Post
Why did they get rid of GTC, some investors might have a specific buy level for a stock that they are happy to own at, regardless if it flash crashes past their order or not. It is a pain in the ass not to have GTC, we get clients all the time who want to buy stock at a specific level and that can rest for months, I ain't reentering them every day..


This is what I do for long term holdings. If I like a stock and it's trading at $30 - I'll put in a GTC at say $28 and hope volatility will sweep me in.

I'm actually providing liquidity by doing that - so it's quite odd that they are going to drop it.

So now I'll have to put the orders in at the start of each day - which means to all intents and purposes - they achieved Nada as my orders will still be there. They have just made me their zero salary employee that has to now do a few mins work for them every day.

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DionysusToast View Post
This is what I do for long term holdings. If I like a stock and it's trading at $30 - I'll put in a GTC at say $28 and hope volatility will sweep me in.

I'm actually providing liquidity by doing that - so it's quite odd that they are going to drop it.

So now I'll have to put the orders in at the start of each day - which means to all intents and purposes - they achieved Nada as my orders will still be there. They have just made me their zero salary employee that has to now do a few mins work for them every day.

Not odd at all. First, the liquidity you (retail) are providing is meaningless as compared to the liquidity infused daily by the institutions. Second, that is EXACTLY what they want to achieve: They want HFT, funds, etc to be there before you daily. If you place your orders ahead of all of them, you are entitled to be filled first, especially on a GTC that sits there for weeks and or months. Now by forcing you to do so daily, you lose your place in the queue.

I came to the same conclusion on the GTC STOP orders. Just assume you think a break of $24 (using your $30 stock) will lead to a massive decline in that stock. If you place it for weeks ahead of time, same scenario as above, you are entitled to be filled first which works to the detriment of the HFTs, algos, etc.

Maybe I am cynical at times and too much of a skeptic, but the writing is on the wall as far as who the exchange favors.

Like at @PeakGrowth said, he is not going to do so daily. They achieved their goal.

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There is also the issue of thinly traded stocks, where queue position is extremely important, where the difference between being filled on the day (or the next 2 months) can fully depend on who is ahead of you.

If you've being sitting there in first place for 2 months waiting for the stock to come to you, then you should have first place, not the dinky guy that just came along yesterday but clicked faster than you - how is this in any way shape or form fair.

If there is no GTC, it will be a battle of whoever manages to get their order on first in the morning and once again it will come down to the wire, whoever has the faster connection that can put the order on first. For example, if NYSE clears all orders and allows placement of orders at say, 6am (I don't know what the actual time is), the HFT's can get their algo's to send it x milliseconds ahead, down to the last microsecond, and be there first to the microsecond dot. Even if there is broker side GTC, the HFTs will beat everyone.

I'd be interested to see if this coincides with a massive increase in revenue for the HFT firms - I bet it does.

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 Big Mike 
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Let's keep perspective.

If you place a limit order to buy @ 8.00 two months ago, and I place an order to buy at @ 8.01 only 1ms before it trades there, then I will be filled ahead of you.

If it stops at 8.01 and I'm filled, and you aren't, then who cares you waited two months.

And if it trades 7.99, then again, who cares you waited two months because a guy that placed an order to buy @ 8.00 only 1ms ago will be filled right behind you when 7.99 trades...

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Big Mike View Post
Let's keep perspective.

If you place a limit order to buy @ 8.00 two months ago, and I place an order to buy at @ 8.01 only 1ms before it trades there, then I will be filled ahead of you.

If it stops at 8.01 and I'm filled, and you aren't, then who cares you waited two months.

And if it trades 7.99, then again, who cares you waited two months because a guy that placed an order to buy @ 8.00 only 1ms ago will be filled right behind you when 7.99 trades...

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This is a perspective with added variables, which changes the whole picture.
The point is that if I want to place an order to buy at X, and it gets traded at X, if I placed it first, I want to be filled.
Now with the elimination of GTC, you need to chase the price or estimate if X + .01 0r X +.10 is worth it.
This is an issue of time management as well.

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 Big Mike 
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Yes but in the real world, my average MAE is more than 0 so that argument doesn't apply. At least to anyone whose MAE is more than 0, which I would venture to say is 99.9% of retail.

I never said it didn't help HFT or institutions, because clearly it does.

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Big Mike View Post
Let's keep perspective.

If you place a limit order to buy @ 8.00 two months ago, and I place an order to buy at @ 8.01 only 1ms before it trades there, then I will be filled ahead of you.

If it stops at 8.01 and I'm filled, and you aren't, then who cares you waited two months.

And if it trades 7.99, then again, who cares you waited two months because a guy that placed an order to buy @ 8.00 only 1ms ago will be filled right behind you when 7.99 trades...

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Exactly - when I put an order in $2 below market price to try to "get a good deal" - I am NOT expecting it to go to that price exactly, reverse and then move up. That would make me quite the whizz kid wouldn't it.

In fact, if I thought it would go down $2 exactly, I'd put my order in 5-10c higher.

Queue position is irrelevant in this scenario.

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  #25 (permalink)
DrewDown
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It's looking like being on the retail end of things is just going to suck more and more.

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  #26 (permalink)
 TickedOff 
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they should allow stop orders within a certain distance of the current price

Understanding yourself is just as important as understanding markets.
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  #27 (permalink)
 PeakGrowth 
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TickedOff View Post
they should allow stop orders within a certain distance of the current price

That's a stop limit, where you can choose the offset limit - but then it gaps past and they don't get filled so people complain anyway and that won't protect their asses.

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  #28 (permalink)
 xelaar 
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DionysusToast View Post
Exactly - when I put an order in $2 below market price to try to "get a good deal" - I am NOT expecting it to go to that price exactly, reverse and then move up. That would make me quite the whizz kid wouldn't it.

In fact, if I thought it would go down $2 exactly, I'd put my order in 5-10c higher.

Queue position is irrelevant in this scenario.

exactly, especially when you can put an order on ECN with 1/10th of a cent precision and it happens all the time

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  #29 (permalink)
 xelaar 
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TickedOff View Post
they should allow stop orders within a certain distance of the current price

it's available on many ECN, NASDAQ itself never had a stop or stop limit AFAIK

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  #30 (permalink)
 Fat Tails 
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puma View Post
Wasn't a stop order "only" a limit order with a very wide limit in modern electronic exchanges ?
Maybe it is just a legal thing, because of the name.

Stop orders and limit orders are different. For example a stop buy order is placed above the market, while a limit buy order is placed below the market.

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  #31 (permalink)
 Fat Tails 
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shodson View Post
I don't use stops so my initial reaction was "so what?" but I find it rather disturbing that the exchange sees that the market is so volatile and out of their control that they have to disable GTC and stop orders to prevent stop hunters and people complaining/suing for trades to be broken whenever there's a flash crash.

The problem here is that there are liquid and illiquid stocks. For small caps it is easier to manipulate price in such a way that stops are triggered, and there is a risk that you get filled far aways from the last (genuine) market price.

The alternative to suppressing stop orders altogether would be to convert all stop orders to "stop orders with protection" as CME has done. In that case stop orders will not be executed either, when prices have moved too far from the prior day's close. CME uses the "no-bust-range" to determine these levels.

In the end whether you call it "stop order with protection" or whether you suppress stop orders, it has the same meaning. You will not be protected in case of a large move or a crash. If in doubt, the solution adopted by NYSE is easier to understand. There are no stop orders available and you are not protected. The CME solution and the meaning is probably not easily understood by everybody.

The NYSE solution however may put small investors at a disadvantage. When a stop level is triggered, their broker simulated stops may take longer to migrate to the exchange and only arrive second after the stops of hedge fonds that have faster access to the exchange.

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  #32 (permalink)
 puma 
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Fat Tails View Post
Stop orders and limit orders are different. For example a stop buy order is placed above the market, while a limit buy order is placed below the market.

I know.

I was referring to the handling of such orders by the exchanges.

There are no stop orders anymore - stop orders are simply (marketable) limit orders with very wide limits.

Thats how they are processed internally.

Sry, I did not find a good link - but there are more details somewhere.

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  #33 (permalink)
 hh713 
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Sorry to revive an old thread,

In what way's do you all see this affecting futures?

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  #34 (permalink)
 shodson 
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hh713 View Post
Sorry to revive an old thread,

In what way's do you all see this affecting futures?

It applies to the NYSE. I don't know of any futures contracts traded on NYSE.

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  #35 (permalink)
 hh713 
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shodson View Post
It applies to the NYSE. I don't know of any futures contracts traded on NYSE.

Right….should have clarified I meant if anyone thought this would have a trickle effect on the ES or YM.

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  #36 (permalink)
 shodson 
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hh713 View Post
Right….should have clarified I meant if anyone thought this would have a trickle effect on the ES or YM.

It just depends on whether or not the exchanges (CME, ICE, CBOE, CBOT, COMEX, NYMEX, etc) want to do this or not. I tend to think the HFT problems are not as prevalent in futures as they are in stocks because of lack of "dark pools" that they can arbitrage against, but for very liquid instruments like ES there might be some shenanigans going on.

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